Last Greek Thoughts
A few salient points that don't appear to live on on the move yesteryear of the fountain of Hellenic Republic commentary.
1. Hellenic Republic seems to live on coming to a standstill. Kerin Hope at FT (HT Marginal Revolution):
Some observations on what these stories mean.
1. The declaration is non close "lending" to Greece, i.e. roofing this year's primary surplus. The declaration is whether the IMF, ECB, as well as residuum of Europe volition lend Hellenic Republic coin to... pay dorsum the IMF, ECB, as well as the residuum of Europe. This is a curl over negotiation, non a lending negotiation.
The loans were non intended to live on paid dorsum now. The loans were intended to leave of absence along for decades. But alongside conditions. The negotiation is close enforcing or modifying the weather for a roll-over.
Rolling over brusk term debt alongside periodic reviews is a dainty incentive mechanism. Foreign policy should essay it.
2. The latest proposed understanding includes abrupt increases inwards taxation rates. Now? Are yous kidding?
I am reminded of the storey of a town, that had a bridge, that had a l mph speed limit. Influenza A virus subtype H5N1 drunkard driver, going 85, caused horrific crash. The town lowered the speed bound to 25.
What Hellenic Republic needs is to larn going again. That is, to persuade anyone that this is a proficient province to start a business, invest, hire people, as well as hence forth. In particular, if Hellenic Republic is to pay dorsum debts, it has to larn an export-oriented growth economy, as well as run merchandise surpluses Higher VAT, higher corporate taxes, as well as higher taxes on successful entrepreneurs are hardly the agency to leave of absence close attracting investment.
I remember of taxes inwards price of incentives. Keynesians hold back at aggregate demand. Either way, raising taxation rates, now, inwards an economic scheme where nobody is paying much of anything because they come across the large explosion ahead seems destined, pragmatically, to enhance no revenue. And, incidentally as well as humanely, to farther crater the economy.
Despite cuts, the Greek authorities is all the same spending due north of 50% of GDP. If yous desire to larn primary surpluses, that seems the house to cut.
But alongside an economic scheme at a standstill, major structural reform (like, leave of absence dorsum as well as position dorsum inwards the structural reforms that Syriza scuttled on arrival) seems similar a to a greater extent than promising short-term laid of conditions. And we'll come across yous on the side yesteryear side large roll-over.
3. Rolling over post-dated checks is a fascinating storey to a monetary economist. Money is created when needed, apparently.
4. The banking concern run, or "jog." Remember, the large Greek bailout already happened. Private investors, largely European banks, who held Greek authorities debt got to sell their debt to authorities as well as IMF. Bailouts are creditor bailouts.
One agency of viewing the electrical flow dull displace crisis is an invitation for ordinary Greeks to bring together these investors. Take euros out of the bank. The authorities default volition happen, perchance alongside banking concern closures, upper-case missive of the alphabet controls, currency exit, as well as expropriation. But lending to Greek banks is forthwith bailed out, alongside the losses sent to Europe via the ECB, exactly equally High German bank's lending to Greek banks was bailed out inwards the showtime round. Too clever, maybe, but that is the effect.
Too clever, really, to depict the situation. It exclusively plant if the authorities truly does exit, as well as soon. Getting coin out of the banks as well as and hence defaulting is i thing. But a frozen economic scheme can't leave of absence along long.
I repeat: the run as well as non-payment, freezing the economy, move on largely because people come across upper-case missive of the alphabet controls, banking concern trace of piece of employment organisation human relationship expropriation, grand all-around default (your mortgage powerfulness larn redenominated to Drachmas too, as well as forgiven i time the banking concern goes under, hence why pay now) as well as Grexit inwards the future. The simplest agency to halt the run as well as economical cratering would live on a company commitment from both sides that authorities default volition non hateful Grexit, capital controls, etc.
5. Without the banks, this would all live on simple. Hellenic Republic could default, remain inwards the Euro (unilaterally if involve be) as well as Euro zone. One authorities defaulting on debts to other governments is non a crisis.
All along though, the interest of the Greek banking organisation makes it much harder.
Hellenic Republic has xi i thou 1000 people, $242 billion gross domestic product as well as 51,000 foursquare miles. That's equally many people equally Ohio, the gross domestic product as well as set down surface area of Louisiana. Why does Hellenic Republic involve its ain banking organisation inwards a mutual currency as well as gratuitous marketplace zone?
Think how much easier this would all live on if Europe had gotten exactly about to integrating its banking system. In whatever urban marrow inwards the US, the major banks are all national. If California defaults on province bonds, your Chase banking concern trace of piece of employment organisation human relationship is safe, as well as non because of Federal deposit insurance. Because the banking concern has no exposure to California bonds.
Imagine if Greeks deposited coin inwards a local branch of a large pan-European bank, backed yesteryear assets spread throughout Europe. Imagine if Greeks borrowed coin from the same bank, funded yesteryear deposits spread throughout Europe. Imagine if, when a remaining Greek banking concern defaults, the European equivalent of Chase could sweep in, as well as receive got over loans as well as deposits seamlessly. Influenza A virus subtype H5N1 default yesteryear the Greek authorities on its bonds would live on inconsequential to Greek banking.
Why not? Well, such banks would non grip vast amounts of Greek authorities debt. Such banks would non receive got Greek ownership, or live on controlled yesteryear the Greek regulatory system. Such banks would non live on available targets of Greek upper-case missive of the alphabet controls, or a currency change.
Hellenic Republic needs an independent, national, banking organisation close equally much equally Ohio or Louisiana involve independent, province banking systems.
6. And currency. Many economists maintain maxim how wonderful it is for tiny countries to receive got their ain monetary policy, hence they tin devalue their agency out of crises similar these. They advocate "capital controls" (English translation: expropriation of savings). That's how Argentina, say, is such a success story. We may live on close to see.
1. Hellenic Republic seems to live on coming to a standstill. Kerin Hope at FT (HT Marginal Revolution):
... many [Greeks] receive got merely stopped making payments altogether, virtually freezing economical activity.
Tax revenues for May, for example, roughshod €1bn brusk of the budget target, alongside hence many Greek citizens balking at filing returns.
The government, itself, has contributed to the chain of non-payment yesteryear freezing payments due to suppliers. That has had a knock-on effect, stifling the pocket-size businesses that dominate the economic scheme as well as edifice upwards a mount of arrears that volition receive got months, if non years, to settle.
“Business-to-business payments receive got almost been paused,” i Athens human being of affairs says. “They are exactly rolling over postdated cheques.”
Around seventy per cent of restructured mortgage loans aren’t existence serviced because people remember foreclosures volition exclusively live on applied to large villa owners,” i banker said.2. If a Greek goes to the ATM as well as takes out a charge of cash, where does that cash come upwards from? The response is, basically, that the Greek key banking concern prints upwards the cash. Then, the Greek key banking concern owes the amount to the ECB. The ECB treats this equally a loan, alongside the Greek key banking concern taking the credit risk. If the Greek authorities defaults, the Greek key banking concern is supposed to brand the ECB proficient on all the ECB's lending to Greece. It's pretty clear what that hope is worth.
Some observations on what these stories mean.
1. The declaration is non close "lending" to Greece, i.e. roofing this year's primary surplus. The declaration is whether the IMF, ECB, as well as residuum of Europe volition lend Hellenic Republic coin to... pay dorsum the IMF, ECB, as well as the residuum of Europe. This is a curl over negotiation, non a lending negotiation.
The loans were non intended to live on paid dorsum now. The loans were intended to leave of absence along for decades. But alongside conditions. The negotiation is close enforcing or modifying the weather for a roll-over.
Rolling over brusk term debt alongside periodic reviews is a dainty incentive mechanism. Foreign policy should essay it.
2. The latest proposed understanding includes abrupt increases inwards taxation rates. Now? Are yous kidding?
 |
| Source: theguardian.com |
What Hellenic Republic needs is to larn going again. That is, to persuade anyone that this is a proficient province to start a business, invest, hire people, as well as hence forth. In particular, if Hellenic Republic is to pay dorsum debts, it has to larn an export-oriented growth economy, as well as run merchandise surpluses Higher VAT, higher corporate taxes, as well as higher taxes on successful entrepreneurs are hardly the agency to leave of absence close attracting investment.
I remember of taxes inwards price of incentives. Keynesians hold back at aggregate demand. Either way, raising taxation rates, now, inwards an economic scheme where nobody is paying much of anything because they come across the large explosion ahead seems destined, pragmatically, to enhance no revenue. And, incidentally as well as humanely, to farther crater the economy.
Despite cuts, the Greek authorities is all the same spending due north of 50% of GDP. If yous desire to larn primary surpluses, that seems the house to cut.
But alongside an economic scheme at a standstill, major structural reform (like, leave of absence dorsum as well as position dorsum inwards the structural reforms that Syriza scuttled on arrival) seems similar a to a greater extent than promising short-term laid of conditions. And we'll come across yous on the side yesteryear side large roll-over.
3. Rolling over post-dated checks is a fascinating storey to a monetary economist. Money is created when needed, apparently.
4. The banking concern run, or "jog." Remember, the large Greek bailout already happened. Private investors, largely European banks, who held Greek authorities debt got to sell their debt to authorities as well as IMF. Bailouts are creditor bailouts.
One agency of viewing the electrical flow dull displace crisis is an invitation for ordinary Greeks to bring together these investors. Take euros out of the bank. The authorities default volition happen, perchance alongside banking concern closures, upper-case missive of the alphabet controls, currency exit, as well as expropriation. But lending to Greek banks is forthwith bailed out, alongside the losses sent to Europe via the ECB, exactly equally High German bank's lending to Greek banks was bailed out inwards the showtime round. Too clever, maybe, but that is the effect.
Too clever, really, to depict the situation. It exclusively plant if the authorities truly does exit, as well as soon. Getting coin out of the banks as well as and hence defaulting is i thing. But a frozen economic scheme can't leave of absence along long.
I repeat: the run as well as non-payment, freezing the economy, move on largely because people come across upper-case missive of the alphabet controls, banking concern trace of piece of employment organisation human relationship expropriation, grand all-around default (your mortgage powerfulness larn redenominated to Drachmas too, as well as forgiven i time the banking concern goes under, hence why pay now) as well as Grexit inwards the future. The simplest agency to halt the run as well as economical cratering would live on a company commitment from both sides that authorities default volition non hateful Grexit, capital controls, etc.
5. Without the banks, this would all live on simple. Hellenic Republic could default, remain inwards the Euro (unilaterally if involve be) as well as Euro zone. One authorities defaulting on debts to other governments is non a crisis.
All along though, the interest of the Greek banking organisation makes it much harder.
Hellenic Republic has xi i thou 1000 people, $242 billion gross domestic product as well as 51,000 foursquare miles. That's equally many people equally Ohio, the gross domestic product as well as set down surface area of Louisiana. Why does Hellenic Republic involve its ain banking organisation inwards a mutual currency as well as gratuitous marketplace zone?
Think how much easier this would all live on if Europe had gotten exactly about to integrating its banking system. In whatever urban marrow inwards the US, the major banks are all national. If California defaults on province bonds, your Chase banking concern trace of piece of employment organisation human relationship is safe, as well as non because of Federal deposit insurance. Because the banking concern has no exposure to California bonds.
Imagine if Greeks deposited coin inwards a local branch of a large pan-European bank, backed yesteryear assets spread throughout Europe. Imagine if Greeks borrowed coin from the same bank, funded yesteryear deposits spread throughout Europe. Imagine if, when a remaining Greek banking concern defaults, the European equivalent of Chase could sweep in, as well as receive got over loans as well as deposits seamlessly. Influenza A virus subtype H5N1 default yesteryear the Greek authorities on its bonds would live on inconsequential to Greek banking.
Why not? Well, such banks would non grip vast amounts of Greek authorities debt. Such banks would non receive got Greek ownership, or live on controlled yesteryear the Greek regulatory system. Such banks would non live on available targets of Greek upper-case missive of the alphabet controls, or a currency change.
Hellenic Republic needs an independent, national, banking organisation close equally much equally Ohio or Louisiana involve independent, province banking systems.
6. And currency. Many economists maintain maxim how wonderful it is for tiny countries to receive got their ain monetary policy, hence they tin devalue their agency out of crises similar these. They advocate "capital controls" (English translation: expropriation of savings). That's how Argentina, say, is such a success story. We may live on close to see.
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