debt and refocus thea new deal for greece - restructure the programm

8/18/2019 Debt and Refocus theA New Deal for Greece - Restructure the Programm

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Summary

It appears that the Greeks have given a bloody nose to the EU, turning in a resounding No vote in Sunday's referendum.Perhaps the No vote is best seen as a protest against seemingly unending depression, unemployment and misery.If Greece's creditors don't restructure the debt and refocus the programme on restoring growth, they face large losses in the not too distant future.

It appears that the Greeks have given a bloody nose to the EU, turning in a resounding NO vote in Sunday's referendum. Though exactly what they haverejected is unclear. The ballot paper is, to say the least, complicated. The UK's Telegraph published this translation from Greek Analyst:

And the paper asked, "Does this make sense to you?"

No, frankly, it doesn't. Neither of the documents referred to are current. The EU negotiators withdrew the June 25th offer as soon as the referendum wasannounced, replacing it with a subtly altered version from the "institutions" and dangling the carrot of debt restructuring if Greeks vote to accept the terms.No doubt they thought that this would force the Greek government to cancel the referendum. They were wrong. But the entire bailout programme expired onJune 30th anyway, rendering the June 25th offer obsolete.

So the Greeks have rejected an offer that no longer exists. Perhaps the No vote is best seen as a protest against seemingly unending depression,unemployment and misery. I have considerable sympathy for this, though it will undoubtedly annoy Greece's creditors.

But there has been a much more interesting development in recent days. The second document referred to on the ballot paper is the fudged debt sustainabilityanalysis that accompanied the June 25th offer. But this too has now been superseded. The day after the announcement, the IMF produced another, morecomprehensive debt sustainability analysis. It wasn't published until July 2nd. Allegedly this was because European members of the IMF board objected to itspublication prior to the referendum. And having read the IMF's new report, I'm not surprised. The report undermines the EU creditors' entire case.

On first reading, the report is highly critical of the current Greek government:

But significant changes in policies since then-not least, lower primary surpluses and a weak reform effort that will weigh on growth and

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A New Deal For Greece

Jul. 5, 2015 11:22 PM ET | 54 comments | Includes: EU, FEU, GREK by: Frances Coppola

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privatization-are leading to substantial new financing needs. Coming on top of the very high existing debt, these new financing needs render thedebt dynamics unsustainable. This conclusion holds whether one examines the stock of debt under the November 2012 framework or switchesthe focus to debt servicing or gross financing needs.

But embedded in the text (p.4) is this admission that the programme was ALREADY off track before Syriza came to power:

The 2014 primary fiscal balance fell short of the program target by 1.5 percent of GDP.

That is a considerable shortfall. And this was on top of the slippage identified in the previous programme review:

Debt/GDP was projected to fall from 175 percent of GDP at end-2013 to about 128 percent of GDP in 2020 and further to 117 percent of GDPin 2022. These were above the thresholds agreed to in November 2012, of debt coming down to 124 percent of GDP in 2020 and to "substantially

below" 110 percent of GDP in 2022.

In fact these charts from the IMF's report show that the programme had failed to meet targets from the start:

(click to enlarge)

In 2013 the growth target was missed by a mile on the downside and the primary balance was also slightly below target. This programme has NEVER met itstargets. Nor did the previous one.

Blaming the present government entirely for the failure to meet programme targets is thus unjustified. True, Greece's economic performance has significantlydeclined under the present government, mostly due to the uncertainty caused by its attempt to renegotiate the terms of the current programme. But if I wererunning this programme - and I am, among other things, a qualified and highly experienced project manager - I would have questioned the scope andassumptions long ago. A programme that is unable to meet any of its targets right from the start is not fit for purpose.

The slippage has principally been blamed on the Greeks not implementing the agreed reforms. There is some truth in this. But inadequate reforms do not fullyexplain Greece's terrible growth performance. Nor do they explain the deflation shown in the right-hand chart. Both of these are actually symptomatic of asevere demand squeeze caused by sharply falling real incomes. Or, if you like, by monetary tightness caused by very high real interest rates and no monetaryoffset from the ECB. It amounts to the same thing. The continuing fall in GDP makes the debt burden bigger, while deflation makes it more difficult to payoff. Yanis Varoufakis says Greece is in "debt deflation". These charts prove that he is right.

And as Irving Fisher reminds us, austerity is not the right medicine for a debt deflation. On the cont rary, it makes matters worse.

Written at the height of the US Great Depression, Fisher's short paper "The Debt Deflation Theory of Great Depressions" describes how a debt crisis - be it

sovereign or private - becomes an economic disaster. Fisher says that it is the combination of high debt with deflation that is particularly toxic. By itself,deflation need not be a problem at all, and a debt crisis may be quickly resolved. But when over-indebtedness is combined with deflation, a toxic spiraldevelops. Fisher describes it thus: "The more the debtors pay, the more they owe". And he explains how devastating the effects can be:

(click to enlarge)

What we have seen in Greece in recent years is a fine example of this. Greece's economy has experienced a collapse on a similar scale to that in the US in1929-32:


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(click to enlarge)

And in Greece today, as in the US's Great Depression, debt deflation is accompanied by bankruptcies, unemployment and starvation.

The 2012 programme makes no attempt to restore the Greek economy. Rather, it is narrowly focused on achieving debt sustainability. To achieve this, itenvisaged Greece running primary surpluses of over 4% of GDP for many years from 2016 onwards and achieving the highest TFP growth in the Euro area.This, for an economy as deeply depressed as Greece, is economically illiterate. It was never remotely achievable and I think the worse of both the IMF andthe previous Greek government for agreeing to such targets.

Unsurprisingly, the first objective of the present Greek government was to get the primary surplus targets reduced. And it succeeded in this a im. But crucially,it did not manage to persuade the creditors to consider further debt relief. For this the IMF must bear much of the blame. Had it supported the Greek government in its efforts to bring debt sustainability to the negotiating table, we might not now be in this dreadful situation.

The IMF has now admitted that watering down the primary surplus targets makes the debt unsustainable:

In particular, if primary surpluses or growth were lowered as per the new policy package-primary surpluses of 3.5 percent of GDP, real GDPgrowth of 1½ percent in steady state, and more realistic privatization proceeds of about €½ billion annually-debt servicing would rise anddebt/GDP would plateau at very high levels (see Figure 4i). For still lower primary surpluses or growth, debt servicing and debt/GDP risesunsustainably. The debt dynamics are unsustainable because as mentioned above, over t ime, costly market financing is replacing highlysubsidized official sector financing, and the primary surpluses are insufficient to offset the difference.

As FT Alphaville's Joseph Cotterill puts it, this means that the private sector really doesn't want the Greek debt it unloaded on to the public sector back anytime soon. Or indeed ever.

But even these new policy targets are unrealistic. For a sovereign to run a substantial primary surplus AND achieve positive growth, either the external sector

or the private sector must be in deficit. This implies that either Greece must also run a substantial trade surplus or Greek households and businesses must takeon debt. The second of these is highly unlikely: real incomes for Greek households are falling sharply, Greek businesses are understandably unwilling toborrow to invest and Greek banks have high and rising proportions of non-performing loans on their balance sheets. Greece must therefore run a substantialtrade surplus to have any chance at all of meeting these targets. Frankly, given Greece's long-standing competitiveness problem, the damage to Greece'salready weak supply side in recent years, and the fact that it is locked into the Euro at far too high a real exchange rate, the chances of this are very low.

The IMF concedes that these targets are unachievable in practice. And this is where the fun starts. The IMF's Q&A on alternative scenarios is revealing. First,on growth:

What if growth were lower-closer to the historical pattern of about 1 percent per year? .....Real GDP growth of about 1 percent would stillrequire strong assumptions about labor market dynamics and structural reforms that yield TFP growth at the average of euro area countries. Insuch a scenario, Greece's debt would remain above 100 percent of GDP for the next three decades. Doubling the maturity and grace on existingEU loans and offering similar concessional terms on new borrowing, as specified above, would be vital to preserve gross financing needs within asafe range-the average GFN during 2015-2045 would be 11¼ percent of GDP.

Crikey. So even real GDP growth of 1% per annum is a tall order. And it wouldn't make much of a dent in Greece's debt /GDP anyway.

Now, about that primary surplus:

What if primary surplus targets could not exceed 3 percent of GDP over the medium term? In that case, the provision of concessionalfinancing for a prolonged period (10 years) would keep the GFN stable and below the 15-percent threshold over the next three decades. Thedecline in the debt-to-GDP ratio, nevertheless, would be very gradual.

So unless Eurozone creditors agree to a huge extension of existing maturities and concessions on interest payments, debt would still be unsustainable evenwith a persistent primary surplus of 3% of GDP for decades. And if primary surpluses were much lower than this, then in addition to concessions andrescheduling there would have to be actual losses for Eurozone governments who made the mistake of bailing Greece out in 2010:

However, lowering the primary surplus target even further in this lower growth environment would imply unsustainable debt dynamics.

If the medium-term primary surplus target were to be reduced to 2½ percent of GDP, say because this is all that the Greek authorities couldcredibly commit to, then the debt-to-GDP trajectory would be unsustainable even with the 10-year concessional financing assumed in theprevious scenario. Gross financing needs and debt-to-GDP would surge owing to the need to pay for the fiscal relaxation of 1 percent of GDP per


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year with new borrowing at market terms. Thus, any substantial deviation from the package of reforms under consideration-in the form of lowerprimary surpluses and weaker reforms-would require substantially more financing and debt relief.....

In such a case, a haircut would be needed, along with extended concessional financing with fixed interest rates locked at current levels. Alower medium-term primary surplus of 2½ percent of GDP and lower real GDP growth of 1 percent per year would require not only concessionalfinancing with fixed interest rates through 2020 to cover gaps as well as doubling of grace and maturities on existing debt but also a significanthaircut of debt, for instance, full write-off of the stock outstanding in the GLF facility (€53.1 billion) or any other similar operation. Thedebt-to-GDP ratio would decline immediately, but "flattens" afterwards amid low economic growth and reduced primary surpluses. The stock andflow treatment, nevertheless, are able to bring the GFN-to-GDP trajectory back to safe ranges for the next three decades.

To make matters worse, the IMF suggests that as Greece's debt is nearly all held by the official sector, there is no systemic risk and hence no reason for theIMF to involve itself any further in a programme which has no chance whatsoever of returning Greece's debt/GDP to a sustainable level.

The message from the IMF to the EU negotiators is clear: "We've had enough of this. Restructure this debt NOW or we are out."

The result of the Greek referendum gives democratic legitimacy to the Greek government's demands for debt restructuring and relaxation of programmetargets. But in reality, the Greek government had already won, thanks to the IMF belatedly applying its own rules. In the end, debt that can't be paid won't be,and attempts to make it payable through harsh austerity only make matters worse. If Greece's creditors don't restructure the debt and refocus the programmeon restoring growth, they face large losses in the not too distant future. Indeed, given the damage done to the Greek economy by the bank closure and capitalcontrols, that future may be closer than they think.

In their own interests, Greece's official creditors must now construct a New Deal for Greece.

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Interesting Times, contributor, premium contributorComments (13954) | + Follow Following - Unfollow | Send Message I must admit that i have read quite a lot about Greece and must say that this article is one of the best.

Glad to see a NEW author who get's it !

Please keep up the good work, possibly another art icle as a follow up for those who don't understand the ramifications as to how bad this really is..5 Jul, 11:49 PMReplyLike15

Harm Elderman, contributor, premium contributorComments (1186) | + Follow Following - Unfollow | Send Message

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Ow come on..

"But in reality, the Greek government had already won, thanks to the IMF belatedly applying its own rules. In the end, debt that can't be paid won't be,and attempts to make it payable through harsh austerity only make matters worse." ..

The Greek Government had won? If they consider Greece deteriorating at rocket speed with a middle class which will be wiped out (what's left of it), abank system which will fail at any moment, poverty will increase, unemployment will get a lot worse than it already is and so forth a victory. If theyconsider all that a victory (!?), then oh yes Greece definitely won.

In my view, Greece is doomed for decades. Its economy has always been weak in Europe, but now, it's like a boat without an engine on the middle of the ocean. Drifting forever....6 Jul, 05:17 AMReplyLike0

jyard01, contributor, premium contributorComments (257) | + Follow Following - Unfollow | Send Message One of the best summaries of the greek situation I have read. They have been presented with a 'lose/lose' situation by the EU Commission.

5 Jul, 11:54 PMReplyLike7

sphereless, contributor, premium contributorComments (193) | + Follow Following - Unfollow | Send Message You are dealing with a government that will not allow the regulation reform for economic growth. The creditors will never get a their money back without playing hardball, they probably won't get it back no matter how this plays out, but to throw more money after bad makes no sense. CulturallyGreece has shown their cards by electing a communist government, the Germans need to cut their losses and try and make an example to deter the restof the Southern neighbors.

I am so worn out by the word "austerity". Usually those that throw it around are inclined to endless government spending regardless of the value one

gets from allocating those funds. They also assign the word to any cut in the growth of spending, spending is not going down anywhere. Do we reallyknow how all this debt is going to play out? And the Krugmanites still say pile it on? The same experts who got us into the debt game keep crying formore.5 Jul, 11:56 PMReplyLike10

Andreas Hopf , contributor, premium contributorComments (11057) | + Follow Following - Unfollow | Send Message "You are dealing with a government that will not allow the regulation reform for economic growth."

The Tsipras-Varoufakis administration is all about regaining "dignity" after "oppression" by "terrorist" forces. Instead of looking hard at who and what

brought Greece to its predicament since Karamanlis took over from Papadopoulos in 1974, the electorate has once again voted for a sentimental journey.

Too bad, but so be it.6 Jul, 12:20 AMReplyLike4

shaxmatist1, contributor, premium contributorComments (176) | + Follow Following - Unfollow | Send Message


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I agree, the Germans need to cut off the money taps going to Greece. The message needs to be clear - if you dont pay your debts, you will suffer. Hardand painful. It's a message that needs to be sent not so much to the greeks, but more importantly to bigger debtor nations - Italy, Spain (even USA forthat matter).

The worst outcome would be to mumble and shuffle feet then just keep throwing more money at Greece. Thats basically an open invitation to Italy todefault on their debts as well - go ahead, dont pay your debts, we'll support you anyway.

For the good of the rest of Europe, Greece needs to be flogged. Cut them off the grid, let their banks fail, let their pensions disappear. Tough love but

thats the road they chose in yesterdays referendum.6 Jul, 03:29 AMReplyLike2

Amouna, contributor, premium contributorComments (1931) | + Follow Following - Unfollow | Send Message Sure that would be a great path to follow!!!

One question though: Who's on the hook for all Greek Counterparty Credit Risk sitting on banks' balance sheets in various EU countries?

NOT ME6 Jul, 04:55 AMReplyLike0

yestoeverything, contributor, premium contributorComments (236) | + Follow Following - Unfollow | Send Message Hogwash.

Economics 101 says that you cannot austerity yourself out of massive debt.

Cuts demanded by the Troika only serve to reduce government revenue.

Your suggestion that the government of Greece is 'communist' is utter crap.

May I suggest you read more and speak less?6 Jul, 05:17 AMReplyLike0

RM13, contributor, premium contributorComments (983) | + Follow Following - Unfollow | Send Message Greece has defaulted. Current left wing government has no intention of putt ing together a plan that would stimulate growth or create green shoots.Might as well cut losses and move on, EU. Pain for Greece has just started - in fact Greeks need to be starved, harassed, insulted - weeds of socialismand marxism sprouting from Hellenic peninsula need to be exterminated. If the cost if a tens of thousands of Greek lives, it's cheaper than contagionthat would happen in rest of Europe and US.6 Jul, 12:07 AMReplyLike12

justaminute, contributor, premium contributorComments (917) | + Follow Following - Unfollow | Send Message


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I agree, but doubt that is in the cards.6 Jul, 12:23 AMReplyLike0

6228371, contributor, premium contributorComments (5677) | + Follow Following - Unfollow | Send Message

It is crazy that Greece voted no. It seems like there is a good chance for Greece to be kicked out of the Eurozone. When Greece has its own currency,what do you think will happen? Imo it is likely they will need even greater austerity than they would have needed by staying in the Eurozone.Otherwise disaster is likely to occur. Someone should have sent Greek officials some of these as a reminder of what might happen if Greece leaves theEuro.

http://bit.ly/1BeAdKq6 Jul, 05:07 AMReplyLike0

yestoeverything, contributor, premium contributorComments (236) | + Follow Following - Unfollow | Send Message

Greece has not defaulted.

Only the creditor can declare a default.

Currently Greece is in arrears.

Sad to see you take some glee in the suffering of your fellow human beings.

America gets QE and Greece gets austerity....interesting.6 Jul, 05:31 AMReplyLike0

luckylalo, contributor, premium contributorComments (650) | + Follow Following - Unfollow | Send Message A well-written article, yes.

However, it basically blames Greece's problems on everyone except Greece.6 Jul, 12:17 AMReplyLike9

Interesting Times, contributor, premium contributorComments (13954) | + Follow Following - Unfollow | Send Message @LUCKY

Why can't we blame the creditors ? After all they did lend the money. So what did they use as an excuse to lend more? As some have posted "just cutyour losses and move on".

It isn't that easy, if it were this would have been over 6 years ago !! You give them a break, and like i have posted, others will line up with a pen asking


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where do they sign for the extension/write down ?

No, this is going to be a blue print for something down the road. BOTH sides need to be careful. But make no mistake, the people are going to suffer,and it's not going to be pretty.

I think the author covered quite a few areas in short order, and in a possible follow up as i suggested, could keep us informed. I hope this becomes aseries since the Author seems to be spot on !!6 Jul, 12:31 AMReplyLike1

justaminute, contributor, premium contributorComments (917) | + Follow Following - Unfollow | Send Message Anyone can blame anyone they want. It will not change the outcome at some point.6 Jul, 12:45 AMReplyLike1

sphereless, contributor, premium contributor

Comments (193) | + Follow Following - Unfollow | Send Message They are both to blame, but since rule of law was thrown out the window by all parties involved a while back and the Greeks currently have acommunist government probably a good idea to cut your losses. Yeah it's a lot, but 30 year, 50 year and 100 year bonds seem to be becoming a nicevehicle to kick cans down the road. The worst thing they can do is open the door to all the other Southern pals.

The euro is and was a bad idea from my perspective, I bet we see Portugal turning hard left politically next which will create another Greece likenegotiation. The Spain, then Italy, etc. None of this ends well, nor should it. Europe is swamped in labor regulations that make California look like anAyn Rand dream state (you can't fire anyone, their benefits and pensions are ludicrous, there culture is turning much faster to the left then the US's mostDemocrat state). Hopefully the Greeks and their other Euro pals learn a lesson about borrowing and lending, about creating wealth and turning up thefreedom and turning down the central planning.6 Jul, 12:52 AMReplyLike3

J Mintzmyer, contributor, premium contributorComments (4970) | + Follow Following - Unfollow | Send Message The only way to prevent the Euro from unravelling is to make a strong example out of Greece by kicking them out of the Eurozone. But what scares meis the potential for an angry mob mentality to blame the rest of Europe instead of their government and then spiral deeply left and voila, you have aEuropean Venezuela.

Lots of unrest for decades to come in that scenario. This vote and its results leads to a lose-lose scenario for the entire world. I truly feel bad for the40% of Greeks who understand the issue is with their own society and government structure. You cannot have a welfare state that isn't heavilysupported by industry.6 Jul, 01:00 AMReplyLike6

aretailguy, contributor, premium contributorComments (1444) | + Follow Following - Unfollow | Send Message One can only hope that the adults do kick Greece out of the Euro. Don't feel to sorry for the Greeks, the folks here in the USA will be facing thesequestions soon my friend...6 Jul, 01:59 AMReplyLike1

Rainbow Investments, contributor


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, premium contributorComments (27) | + Follow Following - Unfollow | Send Message I can assure you that there is little sympathy in Portugal for leftist ideas like the ones that took the Greeks where they are now. The Portugueseimplemented a lot of austerity measures and paid the debt to the creditors. The ‘southern pals’ are not made equal.6 Jul, 05:06 AMReplyLike0

6228371, contributor

, premium contributorComments (5677) | + Follow Following - Unfollow | Send Message "This vote and its results leads to a lose-lose scenario for the entire world. I truly feel bad for the 40% of Greeks who understand the issue is with theirown society and government structure. '

Imo the Euro is likely to rally quite a bit from here as people expect Greece to be kicked out of the Eurozone, and the aid to Greece to dry up. Imo theEuro and gold are likely to rally quite a bit this week.

At least the rest of Europe has decided they won't be held captive any longer by Greece. Having Greece bring economic devastation to the rest of Europe will no longer be tolerated.6 Jul, 05:16 AMReplyLike0

justaminute, contributor, premium contributorComments (917) | + Follow Following - Unfollow | Send Message The creditors will cave. They have too much to lose.6 Jul, 12:19 AMReplyLike2

Interesting Times, contributor, premium contributor

Comments (13954) | + Follow Following - Unfollow | Send Message @J

I agree in the long run the creditors will restructure. But here's the rub. Does it start an avalanche of others ? Does it run over the EU ?

This seems like a lose/lose situation which makes it very scary. Is this the canary we have been waiting for ? Many unanswered questions. Tonight,while i was watching the USA win it's soccer game, i read quite a few articles that were either dead wrong on the vote, or merely scratched the surfaceon the ramifications of what lies ahead.

This could get very ugly worldwide...

6 Jul, 12:25 AMReplyLike1

justaminute, contributor, premium contributorComments (917) | + Follow Following - Unfollow | Send Message "This could get very ugly worldwide..."

Agreed. But the current "leadership" in the world knows nothing other that endless printing and debt to solve any issue. It all continues until some force


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beyond the control of the money printers brings it to a halt. It is little different than any bubble that has occurred in history. This debt/credit bubble willbe brought to an end by an unseen\unpredicted event or series of events resulting in pain for everyone. This is just another step toward the resolution.6 Jul, 12:44 AMReplyLike1

Interesting Times, contributor, premium contributorComments (13954) | + Follow Following - Unfollow | Send Message @JYour preaching to the choir !!

Now your comment "It is little different than any bubble that has occurred in history." may not be correct . Maybe this bubble can be way more severethen the last one?

Again, as i stated here or in another article, were all GUESSING as to how severe it will be. Some don't even think we have a bubble..

That is why i invited all of you to drop over on my blog so that this discussion can continue until we burnt it to death...6 Jul, 01:21 AMReplyLike0

Harm Elderman

, contributor, premium contributorComments (1186) | + Follow Following - Unfollow | Send Message I think the creditors don't really give a rat's ass about Greece. They will have to pay back .. and eventually you could postpone it for a few years but amost likely scenario is to keep them on a leash.

Greece shut themselves in the foot with this NO. The country needs reforms, the left-wing government will not do this. They rather have money, butexactly the way Greece wants it .. and not how Europe wants it.

Europe should cut all funding to Greece and wait and see what they come up with on their own. If they do, they can start paying back that money wehave given them.


aarc, contributor, premium contributorComments (2787) | + Follow Following - Unfollow | Send Message Written by a true analyst.

Not by investigative journalists.

- If memory serves right, the IMF and/or WB re-structured the Third World Debts a few decades ago. They were in such a tight bind that I wasexpecting they would never be able to recover from massive debt and decades-long recessions and stagnant economies.

Viola! Those former Third World countries are now what we call the Developing Countries and their economies have improved massively they are nowfondly called the 'Emerging Markets'.

Darkest before dawn for Greece?6 Jul, 12:20 AMReplyLike1


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fritz68, contributor, premium contributorComments (279) | + Follow Following - Unfollow | Send Message Very good article.

Although if the majority of the Greek populace probably didn´t understand what they were voting for given that the ballot document wasout-dated/overly-complex, does the referendum really give ́ democratic legitimacy´ to the Greek government´s demands?

Reminds me of the Scottish independence referendum last year when the economic realities (such as a massive discrepancy between projected and realoil revenues even without the collapse in the price of oil) were almost swept aside by emotional bravado and blind nationalism.

http://bit.ly/1LNa7kb6 Jul, 12:33 AMReplyLike1

J Mintzmyer, contributor, premium contributorComments (4970) | + Follow Following - Unfollow | Send Message

The write-up itself is sharp, but the conclusion and tone is a bit disturbing. Perhaps I'm reading this incorrectly, but it seems to be another case of blaming creditors for the poor decisions of the debtors. Where is the discussion of Greece's excessive pension program, of its ineffective tax structure,of the spiraling dependence on government spending to keep the economy even slightly stable?

Sometimes we can rationally blame creditors for being unfair or for providing deceptive financial instruments, such as the subprime ARMs in the U.S.housing market issued to non-qualified buyers by bankers who fudged the paperwork.

When will the debtors take responsibility for their failed system? Greece's no vote must lead to a final deal proposal. If Greece refuses to cooperate,they need to exit the Euro and deal with the consequences.

If Greece gets a free pass due to their "middle finger," then why should Spain, Portugual, Ireland, or Italy continue to t ry to reform their structuralissues?

The Greek vote places the Eurozone in an awkward position, decimate Greece or turn the entire Euro into a sham/joke. Greece voted no, I say givethem the Drachma, and I truly hope the best for them.

Unfortunately I think we'll see a European Argentina. If they don't get their act together, a European Venezuela.6 Jul, 12:40 AMReplyLike7

Andreas Hopf , contributor, premium contributorComments (11057) | + Follow Following - Unfollow | Send Message "Where is the discussion of Greece's excessive pension program, of its ineffective tax structure, of the spiraling dependence on government spending tokeep the economy even slightly stable?"

Exactly.

"Unfortunately I think we'll see a European Argentina. If they don't get their act together, a European Venezuela."


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Spot on.6 Jul, 12:53 AMReplyLike2

Michael Clark , contributor, premium contributorComments (9998) | + Follow Following - Unfollow | Send Message Creditors should not keep giving loans to borrowers who keep making bad decisions. Except this seems to be the game creditors are playing withgovernments. Keep pumping loans to anyone who asks for a loan; fine if they pay the loan back; if they don't run to the government for a bailoutprovided by taxpayers. It is chronic now, and toxic.

We are in the midst of a huge debt deflation all over the world. We think we can survive this without pain by debasing the currency. But it is notworking. Nothing can grow unless we offload all this debt we are currently protecting with low interest rates. We need to normalize interest rates butcannot do it without what is called in this article 'unnecessary suffering'. I call it necessary suffering. We need to be aware of what we are doing -- andbe aware of what (karmic) debt looks like, feels like, and how it is repaid next time we start financing 'extended growth' by stealing money from thefuture, which, in a spiritual sense, is a sin, with heavy implications.6 Jul, 03:09 AMReplyLike1

Andreas Hopf , contributor, premium contributorComments (11057) | + Follow Following - Unfollow | Send Message

Citizens should not keep voting for governments that, decade after decade, since 1974, sink foreign aid and development funds into the pockets of cronies, nepotists and oligarchs.

All else is Bravo Sierra.6 Jul, 04:44 AMReplyLike0

Rainbow Investments, contributor, premium contributorComments (27) | + Follow Following - Unfollow | Send Message Exactly. But they do. And then when all is wrong, they find a Hero and act like crazy nationalists.


Michael Bryant, contributor, premium contributorComments (5823) | + Follow Following - Unfollow | Send Message Why not go like Iceland did? They defaulted. They left the eurozone. They're fine.

If I am correct , France took the Rhineland from Germany, and demanded payment for WWI. The Rhineland was Germany's manufacturing center. Thisled to Germany printing of money which led to a depression which then led to WWII. Seems to me that Europe never learned.6 Jul, 12:43 AMReplyLike0

Andreas Hopf , contributor, premium contributorComments (11057) | + Follow Following - Unfollow | Send Message Iceland never introduced the Euro and never was a member of the EU; hence it never left.6 Jul, 12:57 AMReplyLike8

shaxmatist1, contributor, premium contributorComments (176) | + Follow Following - Unfollow | Send Message


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1. Iceland wasnt in the eurozone2. Iceland's problems were external - their banks loaned too much money in other countries and those gambles went sour. Internally they were fine -people paid taxes, lived within their means, their welfare programs were modest, etc. Thats why Iceland recovered so well after defaulting on theirexternal debt.3. Greece's problems are internal - businesses dont pay taxes, people dont work, but get big pensions and big welfare handouts. They are no Iceland6 Jul, 03:42 AMReplyLike1

june1234, contributor, premium contributorComments (3257) | + Follow Following - Unfollow | Send Message Correct. Greece and the rest of em should never have joined either .After defaulting on loans it could never repay in 09 today Iceland enjoys a 4.5%unemployment rate . Greece might want to follow that business model6 Jul, 03:48 AMReplyLike0

Andreas Hopf , contributor, premium contributorComments (11057) | + Follow Following - Unfollow | Send Message Greece should not have joined the EWG in 1981.6 Jul, 04:45 AMReplyLike0

may be, contributor, premium contributorComments (186) | + Follow Following - Unfollow | Send Message Excellent ArticleHope their is a follow up article6 Jul, 01:45 AMReplyLike0

S12A34, contributor, premium contributor

Comments (10) | + Follow Following - Unfollow | Send Message "But in reality, the Greek government had already won, thanks to the IMF belatedly applying its own rules."

Won because it created chaos that resulted in debt being unsustainable?

Give me a break. Greek economy was doing just fine last December until Germany decided to keep Greece in focus so that the markets do noconcentrate on France and Italy. Along the measures Germans took was the non-approval of the program by last government and exit to markets. Incoordination with the leftists they overthrew the right coalition and established communists in power. Then they spent their time doing meetings withthe focus on Greece. For Germany is a win-win situation: If Greece does well they get the credit. If Greece does bad they get rid off them and say tohardliners that they cleaned the EU. For stupid leftist in Greece is lose-lose.

The article was a soup of misunderstandings and wishful thinking.6 Jul, 01:48 AMReplyLike2

aretailguy, contributor, premium contributorComments (1444) | + Follow Following - Unfollow | Send Message Greece is toast. Creditors must take it in the shorts. Greek people must take it in the shorts and the EU must move on. The last thing they need is abailout of Portugal or Spain or God forbid, Italy. Put an end to the madness, make a decision and move on already. Let Greece be the poster child of what happens to the country that does not toe the line with the EU. Parenting 101. Do you really want to reward the misbehaving child?


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goofus, contributor, premium contributorComments (335) | + Follow Following - Unfollow | Send Message If you want to go out with dignity, Greece, this ain't the way to do it. You're partying now, but wait until nobody wants your drachma. I wouldn't touch itwith any kind of hedge after this referendum result. αντίο, debt deadbeats.6 Jul, 02:01 AMReplyLike3

Andreas Hopf , contributor, premium contributorComments (11057) | + Follow Following - Unfollow | Send Message At least, chief hooligan Varoufakis resigned to return to academia where his dignity will be restored by his gullible flock of Amazon students.6 Jul, 04:47 AMReplyLike1

Michael Clark , contributor, premium contributorComments (9998) | + Follow Following - Unfollow | Send Message

The whole world is in a debt deflation depression currently. People don't want to admit this, and try to find a way to deflect the t ruth. Fisher recognizedthis

"Ultimately, of course, but only after almost universal bankruptcy, the indebtedness must cease to grow greater and begin to grow less. Then comesrecovery and a tendency for a new boom-depression sequence... This is the so-called natural way out of a depression..." He should have stopped here.This is all he needed to say. He adds something strange: "with a lot of needless cruelty, unemployment and starvation..."

This is what a depression is. This is the austerity that comes with the destruction of the debt that caused the depression.

We need to understand this in Biblical terms. The Depression is Judgment Day. Of course, we would like it to be different. We would like to be able tothink out way out of this. Fisher then tries to think his way out of this. This is 'needless' suffering; if we could just use our reason to 'fix' everything,change the scenario. The fact is, the scenario cannot be changed. By choosing life, we choose death also. Expansion implies, necessitates, contraction.Depression, with a lot of necessary suffering, follows Growth or Inflation by natural law. Birth is painful; death is painful. Birth and death are linked.There is a lot of joy and wealth and excitement along the way. But birth and death are painful.

We have a Judgment Day every 36 years. Why is this so? It just is. It is a law of heaven. Look at American history. We have 18 years of Life,expansion, joy, reason, fertility, individual evolution, and fruition; but then the expansion ends. And we have 18 years of death, darkness, weakness,self-judgment, negativity, contraction back to the seed. We are contracting back to the seed now, from 2001-2019. We contracted back to the seed from1965-1983. And then we expanded from the seed to High-Noon from 1983-2001, from 1947-1965, from 1911-1929....

Was not 1929-1947 a Judgment day on the world? Was not 1965-1983 a judgment on the world, especially on the world America built from 1947-1965?Are we not in a Judgment Day now? The world we built from 1983-2001 is being torn apart brick by brick. And it is going to get worse.

One of the things we MUST do during a DEFLATION SEASON -- there are two main seasons in fact, the INFLATION SEASON, or the SPENDINGSEASON, during which time everything grows, expands, develops, the individual life develops, the individual fruit develops, evolves -- energy is spent,expended -- and this is followed by the end of growth, the end of expansion, the DEFLATION SEASON, THE SAVING SEASON, during which timethe emphasis has to be changed from Spending to Saving, from Spending Energy to Conserving or Saving Energy -- since in a very real sense theSpending Season is Youth and Day Energy -- going outward -- and the Saving Season is Maturity, or Old Age, Night Energy -- dreaming energy --sleeping energy -- going inward.

One of the things we must do in a SAVING SEASON (continuing my thought) is destroy debt. This is why the transition from the SPENDING SEASONto the SAVING SEASON (2001) must be accompanied by an increase in interest rates. This discourages more unproductive debt after growth hasended; also higher interest rates rewards citizens with safe income from interest-bearing investments, to help them pay off their debts in currect in thegrowth season, when interest rates were lowered to encourage growth. To lower rates when a Business Cycle ends (2001) is insane and immoral, in that


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it tempts already endebted borrowers to take on more debt, which is destined to be unproducive since business gowth has ended.

There is no way to have a painless debt deflation. The only way out of this phenomenon is the so-called 'natural way', which included pain,unemployment, despair, starvation. This is the Day of the Lord so often discussed in Biblical writing. Economic Depression is the Day of the Lord, theSabbath, when all creation stops. There are ways to mitigate the pain suffered during these depressions, but it implies more socialism during the time of the Night of Suffering, and less capitalism (less of what central banks are trying to do now, in fact). Less intellectual ejaculation and attempts to trick nautre. More sharing of resources and pooling energy together collectively to survive the Winter as a family, a tribe or as a national of equals.

Capitalism by Day. Socialism by Night. This is what is means by Eternal Life -- and by the idea of the urgency of developing both sides of the brain, theLeft Brain for Day-Cycles, and the Right Brain for Night-Cycles. Be a Master of Both Worlds of Both Sides of the Brain.6 Jul, 02:40 AMReplyLike1

Hidden_Value, contributor, premium contributorComments (89) | + Follow Following - Unfollow | Send Message If the Greek government really had ANY guts THEY (Greece) would be the ones toput the Ultimatum to the idiot lenders of the EU (who lent feloniously & now arereally IN NO POSITION of strength): Greeks should say: We will give you $0.03on the dollar (i.e., three -3%- percent payback) IN FULL PAYMENT as we are not

only insolvent but realistically bankrupt. You can then keep us in the EuropeanUnion or expel us...your choice as we, a proud Greek Nation, don't really givea hoot one way or the other. This is what would solve the Greek quagmire, inmy humble opinion. When you are broke and have nothing to lose it is 100%IDIOTIC to sacrifice your own citizens to feed the loan sharks!6 Jul, 02:47 AMReplyLike2

Faxbot, contributor, premium contributorComments (432) | + Follow Following - Unfollow | Send Message Quick, somebody call Pyongyang. The world needs a distraction, again.6 Jul, 02:53 AMReplyLike0

sethmcs, contributor, premium contributorComments (3465) | + Follow Following - Unfollow | Send Message Two weeks without a functioning banking system and the Greek government will fall. They might be partying today but they will be rioting tomorrow. Iexpect a coup. The CIA might even be arranging one now. All the EU has to do is stall and the whole country will fall apart.6 Jul, 03:27 AMReplyLike2

Vlad Hristov, contributor, premium contributorComments (921) | + Follow Following - Unfollow | Send Message

CIA has no interest in Greece, except exercising the "government manipulation" units. Coup, i DONT think so. Stagnation/depression, YES.Greece can not have standard of living which is similar to the other EU currency members. I have commented on that before. They need to deflate thaton half, even more now, and after that Greece will be ok.6 Jul, 04:21 AMReplyLike0

Halukcan, contributor, premium contributorComments (134) | + Follow Following - Unfollow | Send Message If the Greek debt is wiped off, a domino effect will ensue. The likes of Ita ly, Spain, Portugal will ask themselves this "are we idiots, if the debt of greecegot wiped, they should wipe our debts as well". For this very reason I don't think the creditors will forgive the debt.6 Jul, 04:37 AMReplyLike1


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Deano647, contributor, premium contributorComment (1) | + Follow Following - Unfollow | Send Message Not just profligate public sector spending got them into trouble as Giles Fraser in the Guardian points out, Greece are/were surprise big spenders ondefence which at one point hit over 6% of GDP, over double the EU average . As the US has discovered courtesy of the Middle Eastern Bush IIexcursions, massive increase in debt always accompanies ramped up defence activity.

http://bit.ly/1J05OwX6 Jul, 04:41 AMReplyLike0

Edge Solutions, contributor, premium contributorComments (2) | + Follow Following - Unfollow | Send Message I wonder if there would be any merrit in Greece approaching BRIKS for funding as an alternative to the IMF6 Jul, 04:42 AMReplyLike0

Edge Solutions, contributor, premium contributorComments (2) | + Follow Following - Unfollow | Send Message I feel that Greece should find an alternative funding source, for example BRIKS.6 Jul, 04:42 AMReplyLike0

seekingfoolishness, contributor, premium contributor

Comments (148) | + Follow Following - Unfollow | Send Message why would the BRICs want to fund Greece? The reason Germany lent so much money to Greece was to fund a HUMOUNGOUS trade deficit and fundexports to them and sll the other Mediterranean countries of the South of the Eurozone. Ie They wanted to keep German facotries operating at full tilt.Particulsrly after the Great Recession. So while the Greeks were stupid enough to borrow it the Germans were dumb enough to lend it. Basically they'rall gonna stew!!!!6 Jul, 05:16 AMReplyLike0

User 35362685, contributor, premium contributorComment (1) | + Follow Following - Unfollow | Send Message So how do we think the US markets are going to react tomorrow?6 Jul, 04:53 AMReplyLike0

yestoeverything, contributor, premium contributorComments (236) | + Follow Following - Unfollow | Send Message


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Thank you for your great analysis.

Mostly French and German banks made predatory loans to many Greek governments, knowing that they were fully backed by the IMF.

At the t ime these loans were made, it was apparent to anyone with a brain that Greece had no business being in the EU, yet alone the Euro, includingthe people in charge at those French and German Banks.

And now, the people get to pay, who had very little say to begin with.6 Jul, 05:09 AMReplyLike0

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