
Greece debt crisis: Eurozone summit strikes deal - sampo
http://www.bbc.com/news/world-europe-33503955
======
vegancap
It's a sticking plaster, delaying the inevitable. I don't suspect the 'new
deal' will work and I think the growing discontent among the Greek people will
continue to rise, especially under the measure of the latest deal. Greece will
remain a protectorate and an insubordinate trouble child under the ECB's whip.
Similar scenarios will likely play out in other southern European nation
states in the next decade also.

~~~
erkkie
What's the alternative?

~~~
aembleton
Adopting a free floating currency so that countries aren't tied to other, more
powerful countries but can instead let their economies grow at different
speeds.

~~~
erkkie
I agree that would be the best economic theoretical model, is it in any way
feasible realistically though?

Politically?

Even if ignoring the EU side of it (which is nontrivial for various reasons
not limited to defense, the vision of the EU, etc), is there a magic wand that
would make the Greek government not be populist and wasteful with their own
currency?

~~~
aembleton
Politically it would be very difficult. The problem with the EU is that it
fantasises about being a United States of Europe.

The problem with this is that Europe is not united. We have different
languages, culture and histories. This is also what make Europe a beautiful,
culturally rich place. The political elites are trying to impose a one size
fits all model across Europe which won't work because we are not really all
that united.

We don't have a common European demos that means that individual countries are
fighting for their own interest and their is no overall strategy for Europe
because the electorate doesn't really care about Europe, just what they get
from being a part of it.

We really need to go back to being a trading block and to remove all of the
political dictact and interference. If we really must have political unions,
then they need to be between countries that share a common language so that
the people can challenge their political masters collectively. This would mean
Britian and Ireland, Germany and Austria, France and Belgium.

~~~
erkkie
Where would you draw the line?

Euro as a common currency makes travel super convenient for example, not to
mention the Schengen area and open borders.

Same could be said for certain regulations in health and sanitation for
example, knowing you could rely on some forms of standards existing (however
poorly implemented or not).

Also why would you make artificial barriers based on language, shouldn't the
lines be formed based on culture and common understanding instead? Language is
not what is preventing common people from participating in politics.

~~~
nationcrafting
>Euro as a common currency makes travel super convenient for example, not to
mention the Schengen area and open borders.

Perhaps the various recommendations made in the late 80s and early 90s would
be useful to reconsider. Hayek, for example, often suggested that the EEC
could make every member nation's currency legal tender in all the others, to
create a free market of currencies. He was a big fan of denationalising
currencies anyway, and of having currencies compete against each other.

Another proposal on the table for many years was the idea of launching the
Euro as a parallel currency to every nation's own currency. So, you could
still pay your restaurant bills accross Europe with a single currency if you
wanted to, but nations would still be able to fluctuate against it in case of
trade surplus or deficit, the very thing that has been putting so much stress
on the Euro's frequent deficit members (i.e. Greece, Portugal and Spain), and
stress on the Euro itself.

~~~
FeepingCreature
> the EEC could make every member nation's currency legal tender in all the
> others

Dude may be a great economist, but he clearly has no idea about ergonomics.

Like what, every store has to have twenty different cash drawers? This idea is
_spectacularly_ poorly thought out.

~~~
nationcrafting
I'm not sure. I was in Maastricht for a few months in 92 when the treaty was
being signed. Maastricht is a border town between Belgium, the Netherlands and
Germany. Every bar and restaurant I went to, every market stall, and many
shops easily accepted 3 or 4 different currencies. Today this would be even
easier, since so many people just pay with plastic.

------
DangerousPie
Does anybody have a good source that explains the reasoning behind all of the
measures required from Greece?

Many of them make sense to me in terms of removing clientelist structures
(e.g. removing "protected" jobs, early retirement incentives, bringing
collective bargaining laws in line with the rest of the EU).

However, I don't really understand how increasing VAT or requiring advance
payments on corporation tax is going to help in an already suffering economy.
I presume this is all about increasing revenue by curbing tax avoidance and
closing loopholes, but I can't really find a good source on this.

~~~
mnglkhn2
The main problem is the small taxable base, meaning tax evasion in Greece is a
serious problem. By increasing VAT you make sure that you actually increase
tax revenue quick and in a uniform way across the entire population. It makes
your budgeting and forecasting more predictable and reliable.

Yes, it affects the poor the hardest, but at least you can actually budget an
increase in aid programs.

If it were to hope on plans to increase tax collection efforts it would then
become a very unpredictable and lengthy setup.

Plus, there are already Eastern European countries (see Romania, a country in
the proximity of Greece) that applied the VAT increase measure starting with
2010 when it went up to 25% VAT. At the time, Romanian State workers had to
also accept a pay cut of 30% of their salary. What I mean to say is that the
austerity plan Greece is embarking on right now has been tried already and it
will work. The problem is the political will of the Greek elite to give up
their privileges.

~~~
wozniacki
There is nothing to suggest even affluent Greeks have ever wanted to pay their
share of the tax burden.

From a Der Spiegel article, five years ago:

    
    
      His staff have become very creative when it comes to 
      tracking down tax offenders: They use police helicopters
      to fly over Athens' affluent suburbs and make films of 
      homes owned by doctors, lawyers and businesspeople. They
      use satellite pictures by Google Earth to locate country
      villas, swimming pools and properties. And these tactics
      have revealed that the suburbs didn't have 324 swimming 
      pools, as was reported, but rather 16,974.
    
      Tax fraud investigators spent a number of weeks on 
      nightclub parking lots in Athens and noted down the
      registration numbers of luxury sedans. Their  
      investigation revealed that approximately 6,000 car 
      owners have vehicles worth €100,000, but only reported
      to the tax authorities that they have an annual income 
      of €10,000.[1]
    

[1] Finding Swimming Pools with Google Earth: Greek Government Hauls in
Billions in Back Taxes

[http://www.spiegel.de/international/europe/finding-
swimming-...](http://www.spiegel.de/international/europe/finding-swimming-
pools-with-google-earth-greek-government-hauls-in-billions-in-back-
taxes-a-709703.html)

~~~
mnglkhn2
There is a tax provision where if your house is unfinished (by way of not
having the house painted or the exterior fully done) then you are tax exempt
on the house. Until the house is completed, which might be never.

------
Zenst
What I find worrying is that Greece like a few other countries are in the same
situation, just that the other countries did all the things the loaners wanted
and with that maintained credibility and credit lines so they could get them
directly without having to be so public to get respectable rates.

Those countries did not want Greece to leave as would then place them on the
front line and focus and attention upon them in much the same way that the
press will interview and talk with those at the front of any queue, be that
Apple or any other reason. This is a queue that nobody wants to be at the
front.

But the sad part is, this whole process is self-fulfilling and talent leaves
Greece and with all the uncertainty and worry put upon them, jobs kinda suffer
and only snowballs the situation.

Yet all the focus is upon churning that debt mountain and little or no focus
upon rebuilding and aiding the country beyond the standard - sell this and
that off without any regard for it is is right for Greece.

In short this whole drama focuses upon mopping up a leaking water main and no
focus at all upon resolving that water main and making sure it does not break.
Yes the loaners made suggestions and some come about, many have not and all
the diverging just only hurts the people more.

FOr the Eurozone and the Euro currency if Greece leaves then the knock on
effect could be very detrimental, but that is only because currently Greece is
on the front line and those ripples and impact upon the Euro currency not
negligible and I do wonder if the amount lost on the Euro and the volume of
Euro's in circulation that that amount is greater than all the money Greece
has ever owed.

That nobody has worked out I can see and certainly a larger consideration that
is being mooted. The Euro has lost around 18% against the American Dollar
(USD) in the past year and 10% against the British Pound(GBP).

Still not all atributable to Greece but when the UK/Britain is part the
Euroland though not the currency then the impact and amount involved make it
clear that the sooner the Greek problem is made a non-problem then the better.
Though had they just written of the debt, the actual cost to the Euro-zone
countries would perhaps been far less than it has been. Certainly would have
had better news in that period and focus upon more productive things.

------
icebraining
I absolutely love this phrase: _" I don't think the Greek people have been
humiliated, nor that the other Europeans have lost face. It is a typical
European arrangement."_

~~~
tormeh
I think of Brussels as a kind of rage and humble pie buffet. A bit of both for
everyone.

------
adamc
How sure is it that Tsipras will be able to get the Greek end passed? Seems
rather different than what he campaigned on, so I'm wondering if his party
will revolt.

~~~
ExpiredLink
The deal is _much_ better for them than bankruptcy.

------
somberi
I got this from one of the many forwards but I think it explains bad-debt
painted as good-debt cycle well, even though it is a tad superficial. This is
not applicable only to the Greek tragedy, but also to Sub-prime and startups
burning VC-money.

MARY is the proprietor of a bar in Dublin. She realises that virtually all of
her customers are unemployed alcoholics and, as such, can no longer afford to
patronise her bar – she will go broke.

To solve this problem, she comes up with a new marketing plan that allows her
customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the
customers loans).

Word gets around about Mary's 'drink now, pay later' marketing strategy and,
as a result, increasing numbers of customers flood into Mary's bar.

Soon she has the largest sales volume for any bar in Dublin — all is starting
to look rosy.

By providing her customers freedom from immediate payment demands Mary gets no
resistance when, at regular intervals, she substantially increases her prices
for wine and beer, the most consumed beverages.

Consequently, Mary's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognises that these
customer debts constitute valuable future assets and increases Mary's
borrowing limit.

He sees no reason for any undue concern, since he has the debts of the
unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge
commissions, and transform these customer loans into Drinkbonds and Alkibonds.
These securities are then bundled and traded on international security
markets.

The new investors don't really understand that the securities being sold to
them as 'AAA' secured bonds are really the debts of unemployed alcoholics.
They have had a 'rating house' certify they are of good quality.

Nevertheless, the bond prices continuously climb, and the securities soon
become the hottest-selling items for some of the nation's leading brokerage
houses.

One day, even though the bond prices are still climbing, a risk manager at the
original local bank decides that the time has come to demand payment on the
debts incurred by the drinkers at Mary's bar. He so informs Mary.

Mary then demands payment from her alcoholic patrons, but, being unemployed
alcoholics, they cannot pay back their drinking debts.

Since Mary cannot fulfil her loan obligations she is forced into bankruptcy.
So she now is broke.

The bar closes and the 11 employees lose their jobs.

Overnight, Drinkbonds and Alkibonds drop in price by 90%.

The collapsed bond asset value destroys the bank's liquidity and prevents it
from issuing new loans, thus freezing credit and economic activity in the
community.

The suppliers of Mary's bar had granted her generous payment extensions and
had invested their firms' pension funds in the various Bond securities. They
find they are now faced with having to write-off her bad debt and with losing
over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family
business that had endured for three generations. Her beer supplier is taken
over by a competitor, who immediately closes the local plant and lays off 150
workers.

Fortunately though, the bank, the brokerage houses and their respective
executives are saved and bailed out by a multi-billion euro, no-
stringsattached cash infusion from their cronies in government.

The funds required for this bailout are obtained by new taxes levied on
employed, middle-class, non-drinkers who have never been in Mary's bar.

------
dataker
Using the problem to extend the problem.

Pragmatism is a scarce resource in our time.

~~~
ExpiredLink
The EU found a very pragmatic solution which spares Greece to become a second
Argentina.

~~~
tormeh
Isn't the Argentinean case lauded as an example of successful default?

~~~
wsc981
I would argue it'll be prove more succesful eventually as well. It's better to
start over from a clean slate (even if potential investors might become scared
to invest in a defaulted country) compared to becoming perpetual financial
slaves, which I think will be the future of Greece if they choose to stay in
the Eurozone.

------
ExpiredLink
This is the agreement document:
[http://t.co/4OeNBKtyqv](http://t.co/4OeNBKtyqv)

~~~
_rpd
The transfer of $50bn in state assets to an "an independent fund that will
monetize the assets through privatisations and other means" is a fairly
significant feature of the deal that doesn't seem to be receiving a lot of
attention.

~~~
ExpiredLink
$50bn is an overly optimistic assumption. $7bn is realistic.

------
dbcooper
Well, I guess this is what happens when you elect a bunch of clowns from the
political fringe - no expertise, no negotiating ability, no realistic goals,
no reasonable promises.

This seems to be the worst deal offered to any Greek government yet, including
the deal previously offered to Tsipras.

------
k-mcgrady
Can anyone explain how things got this bad? I've been following this but it's
gone on so long now I've no idea why Greece got hit so hard relative to other
countries in Europe.

edit: Thanks for the explanations.

~~~
tim333
There's a long but entertaining article on it here

[http://www.vanityfair.com/news/2010/10/greeks-bearing-
bonds-...](http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010)

Sample quotes:

>"How in the hell is it possible for a member of the euro area to say the
deficit was 3 percent of G.D.P. when it was really 15 percent?” a senior
I.M.F. official asks. “How could you possibly do something like that?”

>In just the past decade the wage bill of the Greek public sector has doubled,
in real terms—and that number doesn’t take into account the bribes collected
by public officials. The average government job pays almost three times the
average private-sector job.

> The average state railroad employee earns 65,000 euros a year. Twenty years
> ago a successful businessman turned minister of finance named Stefanos Manos
> pointed out that it would be cheaper to put all Greece’s rail passengers
> into taxicabs: it’s still true. “We have a railroad company which is
> bankrupt beyond comprehension,”

~~~
arethuza
I had posted a link to that and then removed it as although the article is
highly entertaining it is also very one-sided.

Now actual reality might be one-sided but I've sort of come to the view that
_how_ the Greeks got into this mess is almost irrelevant at this point and the
focus should be on what concrete measures can be done to save Greece as a
functioning country while giving the best possible deal to their creditors.

Spending too much time on digging over the mistakes both sides made just leads
to name calling and extreme polarization of arguments - look at previous
discussion on HN on this topic.

~~~
tim333
I agree it's a bit one sided as portraying Greece as mucked up and also it's
old history and one should focus on how to fix things now. The same author
wrote a similar article on what went wrong in Iceland "its debt is 850 percent
of G.D.P" and it's interesting that Iceland took a completely different policy
to Greece's so far, defaulting, and is doing quite well really.

I think the austerity inflicted on Greece is kind of dumb. They should try to
keep up the aggregate spending so the economy doesn't crater. But by
encouraging new business etc to provide jobs for the 50% unemployed young
people rather than paying huge salaries and pensions to incumbent government
employees.

~~~
arethuza
Worth noting that the situation in Iceland was completely different. Iceland
had a few investment banks who decided to borrow vast sums and buy lots of
dodgy assets, the government wasn't really directly involved (apart perhaps
from poor regulation).

In Greek crisis the government is the main actor and the Greek banks were
actually fairly well behaved.

------
Trombone12
This was a surprisingly happy article about the deal, other venues have had a
different tone (here represented by their headline):

Bloomberg: "Greece Capitulates to Creditors’ Demands to Cling to Euro"
euobserver: "Greece capitulates at EU summit"

