Greece in Crisis - Fiscal Emergency

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 11:48

http://www.willyhoops.com/the-greek-model.htm



The Greek Model…



Just over a month ago the Greek Socialists led by George Papandreou won a land slide victory over the conservatives. "Five years of Conservative rule and nothing to show for it" thought the people of Greece. But was that because the conservatives were too conservative, or not conservative enough?



In Greece corruption is not limited to the business world, it even infects government statistics. Each incoming government unpicks the accounting tricks employed by the last administration, revealing ever deteriorating public finances, before concealing further rot behind new lies. Is is arrogance or incompetence that bedevils the Greek personality? Perhaps still proud of their great past the Greeks are compelled to self flattery. Wake up people of Greece, you are not only liars and incompetents, you are bankrupt!



This year the budget deficit is projected to rise to 12.7% of GDP...

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 11:50

This year the budget deficit is projected to rise to 12.7% of GDP, although the gap between truth and reality in Greece makes this number far more likely a floor than a ceiling. In 2010 a 9.1% deficit is projected. Gross external debt has already reached 149% of GDP, and Greece is clearly the economic basket case of the EU.

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 11:50

Normally governments depreciate their currencies and inflate their way out of debt, and indeed Greece has regularly employed this trick in the past. But the Eurozone is another story. Years ago, when I was trading government bonds, I used to marvel at the story which crossed my Reuters Terminal almost every day, day in day out for several years running: "Greek Bonds narrow vs German Bonds". Now the same old story is playing in reverse. With the recent downgrade of Greek Government Debt to BBB negative it looks likely that the Greek Government will, at some not too distant point of time, loose the ability to exchange its bonds as collateral in return for ECB funding. How long can the Government hold on after that? Default could then bring down the pension funds, the banks, then the entire economy. The Greek stock market is down 38% in the last month reflecting these sentiments.

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 11:51

It is hard to overstate the degree of this crisis, this is economic history in the making. Will the EU rescue the Greeks? The 'moral hazard' such action would engender would be appalling. Would German tax payers really pay for Greece, or allow the ECB to print money and destroy the value of their savings? Will the government implement draconian spending cuts? This would be the very opposite of what the new Socialist government promised just a month ago.



Most likely Greece will implode after defaulting on its debt and turn to IMF for help. Economic policy will therefore be outsourced to the IMF or the EU. A state of fiscal emergency will be declared in which democratic economic policy making is suspended and policy is dictated from outside. It will not be the first time Greece has abandoned democracy in modern times, but instead of murderous fascists Greece will be run by nameless foreign bureaucrats.

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 11:52

Handled properly the action imposed on Greece has the potential to transform the political climate in the World today. For although Greece is the first to fall, Italy and Ireland are following closely, then the UK, one day even the US. The EU is at the forefront of this change, because it inflexible currency has ensured that government must fix their problems, not doge them by default and devaluation. Just as Democracy collapsed in the 430BC Peloponnesian war, so it falls again today, and Athens again leads the fray.



The EU must prepare itself to enter a new world in which democracy is suspended and policy is dictated by international committee: Greece under the 'China Model'. If the EU gets this right it still has a chance to survive the 21st Century, and it will finally achieve the leading role it has always aspired to, reversing the tide of Global leadership now heading toward China.

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
09/12/2009 12:07

Thanks, very informative.

ismet

scootex



Joined: 03/03/2009
Posts: 908

Message Posted:
09/12/2009 12:17

Does this mean the greeks are going to pop across to cyprus and have a go at the TRNC as history seems to tell us that every time a country gets in to a financial melt down they go to war

dozza67


Joined: 11/07/2008
Posts: 607

Message Posted:
09/12/2009 12:21

Found that really interesting - thank you.

clarets



Joined: 08/01/2009
Posts: 752

Message Posted:
09/12/2009 12:52

That is very interesting. I wonder what the implications for the South are and whether their stance at the negotiations table will alter ?

smithy


Joined: 17/07/2008
Posts: 5301

Message Posted:
09/12/2009 12:53

Very interesting read, thanks for sharing it with us

TRNCVaughan


Joined: 27/04/2008
Posts: 4578

Message Posted:
09/12/2009 13:33

Clarets,



msg 9.



I'm sure the GCs will do everything they can to help their fellow Greeks, including letting them emmigrate to Cyprus, in order to help out - NOT.

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
09/12/2009 13:34

willyhoops

Unfortunately as I have been predicting for sometime now the second recession is on its way. And if everyone thought that the first recession was painful this one will be worse.

AJ

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 13:50

Many people have belived that eventually all the fiscal stimulus and negative real rates of growth would usher in a time of inflation which would have to addressed by very high rates and would plunge the world back into problems like in the late 1970s. But we have no got there yet. What is happening today is a continuation of the old crisis where government and banks are not seen as credit worthy. I guess some more money printing is in order....

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
09/12/2009 13:51

whoops- i meant negative real rates of interest not growth

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
09/12/2009 14:42

willy

Its a 'w' recession as opposed to a 'v' recession but unfortunately rising unemployment and property repossessions are going to make the second dip a lot more painful.

AJ

deecyprus4


Joined: 27/07/2008
Posts: 3452

Message Posted:
09/12/2009 14:51

A most interesting read, we all know the Greeks have lived off of their once great and proud history, they are hasbeens and to answer the question 'is it arrogance or incompetence', it is both.

Dixie Normus


Joined: 22/02/2008
Posts: 820

Message Posted:
09/12/2009 15:26

Good informative post Will, what are your predictions for the UK, we all no its bad but how bad will it get?



D.N

MarkVPiazza


Joined: 14/08/2008
Posts: 530

Message Posted:
09/12/2009 16:43

I think the UK is heading for a much deeper recession next year.



Many friends and people I know have lost or are about to loose their jobs (probably me included) in the private sector -next year the public sector will be hit.



Property prices have held up because very few people can move and get a mortgage at a decent rate, the few properties for sale are snapped-up by people with cash who are fed-up with almost no interest on their savings. (again, personal experience of this)



Also, many properties that should have been reposessed have not (and won't until after the election). Again I know this is true as I'm a director of a residents association where several flats have not paid their service charge for two years, but their mortgage company has paid in order not to forfeit the lease. In normal circumstance these flats would have been reposessed.



It will hit us full force in the late summer/autumn, once the election is done, and the hard decisiions have to be taken

Mark

jimmy


Joined: 15/09/2008
Posts: 251

Message Posted:
09/12/2009 17:24

Greece is now BBB, the lowest rating the ECB will accept as collateral.



also on the S&P's to watch list

deecyprus4


Joined: 27/07/2008
Posts: 3452

Message Posted:
09/12/2009 17:27

Well the riots cannot be helping the situation either, all the local thugs doing their daily thing getting their kicks.

Corbo



Joined: 13/09/2009
Posts: 627

Message Posted:
09/12/2009 17:38

Predictable. The EU expanded too fast. I never though Germany and Greece, for example, would work on an equal fiscal playing field. This farce of a banking crisis is also undermining most economies. Trouble is no one is fixing the core problem and the crisis is now going from bad to worse; whatever the media is saying about recovery. Looks bleak for sometime I'm afraid.

sporty


Joined: 06/12/2007
Posts: 685

Message Posted:
09/12/2009 22:31

Have to agree,too many countries not just Greece have already spent tomorrows money.This crap the press keeps coming out with that we've passed the worst certainly doesnt fool me,call it double dip or just a deeper recession,it'll take many years just to get everything back on an even keel.

andre 514


Joined: 31/03/2008
Posts: 1163

Message Posted:
10/12/2009 02:17

I would like to sound an optimistic note:



no, not "if it isn't hurting it isn't working" but rather, that bubbles bursting

and periodic collapses of confidence and the existing capitalist structures

are very much the nature of the beast

after a forest fire, the "green shoots" poke their way up tp a benign environment



well that's the mechanism, efficient and organic and natural,

though many are injured and damaged in the process

but ground is cleared for the next upward surge with opportunities for the taking



can a government really go bust?

perhaps, if you are thinking confederate dollars or revolutionary assignats,

though a state will usually have some taxes flowing in whatever



but you'll likely see er... spending cuts

firstly because international lenders want social spending reigned back

and secondly it is ultimately the surest way to restore solvency



switch to dictatorship?

maybe an even worse outcome eg the greek colonels botched cyprus takeover

willyhoops


Joined: 12/03/2009
Posts: 89

Message Posted:
10/12/2009 09:58

times are tough but i do not want to be seen pushing anti stock market sentiments.



for example two articles today:



http://www.ft.com/cms/s/0/2aeba62a-e42c-11de-bed0-00144feab49a.html

http://www.ft.com/cms/s/0/6b4becee-e426-11de-bed0-00144feab49a.html



one talking about the wall of money looking for a home and the other how stocks are cheaper today than they were 10 years ago and in every case when this occured in the past the next ten years were very profitable.



the best place to keep money is still the china stock market in my view.



my mother has all her money in gold and has done well from it but it is a bubble and no one can say how long it will continue to last.

Corbo



Joined: 13/09/2009
Posts: 627

Message Posted:
10/12/2009 10:12

Gold is not in a bubble. House prices certainly are in the UK ; being sustained by Government policies. The whole system is built on high property prises and the foundations are sand. Odd how house prices going up is seen as a good thing. Gold is well below its real value. I would be very wary of the stock market in the current situation.

MarkVPiazza


Joined: 14/08/2008
Posts: 530

Message Posted:
10/12/2009 10:26

I agree with Corbo



A good part of the UK economy is based on ever increasing house prices that people borrow against to buy consumer goods.



As real wages are falling, and unemployment is increasing, this "pilar" of the economy might start to look a little shaky



Mark

andre 514


Joined: 31/03/2008
Posts: 1163

Message Posted:
10/12/2009 11:04

it is impossible to predict how prices will move in future



as regards gold or property or cash or shares or anything,

their price can only be expressed in terms of one of the others,

and markets think in the "medium term" where random factors operate,

so the value of predictions can only be limited



as regards willyhoops' mother I would sell gold right now,

since it has had such a good run it may have got caught up in a speculative surge

...or not as the case may be!



property has more intrinsic value, ie you can live there, visit it or obtain rents



we are stuck with a property boom and bust cycle for always:

though fashions change too;

think x-factor's irrelevant clips of polar bears backing a hopeful contestant (eh!?),

think low-rise think self-sufficient think the environment

's funny how concreted tower block resorts look less appealing right now



while britain's fragile economy depended on:

financial services, tourism and property... and mucho borrowing

Corbo



Joined: 13/09/2009
Posts: 627

Message Posted:
10/12/2009 11:20

Bad advice. Gold will be far higher this spring unless you are correct and all the major economies recover. Those like me who are buying Gold, a bit anyway, doubt very much that inventing trillions of pounds and dollars and inflating property prices will lead to successful economic recovery. I predict more trouble ahead with major disruptions to many economies. Gold cannot be invented and is scarce and there is more and more demand for it. Paper money always returns to its intrinsic value throughout history..zero.

Cobbler


Joined: 15/11/2009
Posts: 61

Message Posted:
10/12/2009 11:33

The fundamental problem with the British economy is that it is driven by the high street. We don't produce much these days and too much of what we buy is imported consumer goods. We have borrowed ££££££££££s from overseas to feed our "high street greed" and now we are having to pay for it. The only way to secure savings is to spread the risk, cash, gold, property, bonds and overseas investment. I fear that the economy is being artificially propped up until after the election.

elko2



Joined: 24/07/2007
Posts: 4400

Message Posted:
10/12/2009 12:30

Its the wedding season in India and they buy huge amounts of gold, so the prices are like to be on the rise until April. Then be more careful.

ismet

Corbo



Joined: 13/09/2009
Posts: 627

Message Posted:
10/12/2009 13:10

I agree Ismet..I may sell my bit this April but if inflation takes off which is likely at some juncture after that I may regret selling. I think the politicians who have no real answers to all the debt will try to inflate it away. The savers and those that live within their means are the loosers in this insane new financial world.

MarkVPiazza


Joined: 14/08/2008
Posts: 530

Message Posted:
10/12/2009 14:28

Good job the UK has big gold reserves, oh no I forgot, our financial genius Gordon Brown sold most of it at rock-bottom prices ;(

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
10/12/2009 14:42

sporty

Re your message 22.

Watch out for Spain, that is the next EU member country that is going to go into fiscal meltdown.

AJ