Greece Threatens Sovereign Default

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This could trigger a global financial crisis:

Greek premier Alexis Tsipras has accused Europe’s creditor powers of issuing “absurd demands” and come close to warning that his far-Left government will detonate a pan-European political and strategic crisis if pushed any further.
Writing for Le Monde in a tone of furious defiance after the latest set of talks reached an impasse, Mr Tsipras said the eurozone’s dominant players were by degrees bringing about the “complete abolition of democracy in Europe” and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the “doctrines of extreme neoliberalism”.
“For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim,” he said.
The Greek leader, head of the radical-Left Syriza government, issued a stark warning that his country will not submit to these demands and will instead take action “to entirely transform the economic and political balances throughout the West.” . . .
Mr Tsipras’s article is a thinly-disguised warning that Greece may choose to default on roughly €330bn of debt in the biggest sovereign default ever, and pull out of the euro, rather than breech its key red lines.
The debts are mostly to European official creditors and the European Central Bank. The situation has become critical after depositors withdrew €800m from Greek banks in two days at the end of last week, heightening fears that capital controls may be imminent.
Mr Tsipras’s choice of words also implies that Greece may turn its back on the Western security system, presumably by shifting into the orbit of Russia and China.

The problem with socialism, as Margaret Thatcher wisely observed, is that eventually you run out of other people’s money. Greek is effectively bankrupt, and Tsipras seems to imagine that he can blame this on Greece’s creditors. As much as that may suit Tsipras’ socialist ideas, it won’t produce any more cash. And if Greece stops paying bondholders, this would likely trigger a crisis in financial markets that would hurt a lot of innocent people who never set foot in Greece nor derived any benefit from the money Greece borrowed. Tsipras is reckless, irresponsible, and indifferent to the harm caused by his decisions.

Did I mention he’s a socialist? Pretty sure I did . . .

(Via Memeorandum.)

 

102 comments

  3. First time I’ve ever seen Evans-Pritchard called a hack or demagogue. My observation has been the polar opposite of those terms.

  4. His isn’t, however. Given what he’s posted in the past, I would make it private. He’s about as sharp as a bowling ball.

  6. Government policy is the primary enabler of the banksters. The “too big to fail” thing is a dangerous concept and the big banks, or other institutions, that could bring down an economy because of their size, need to be broken up so they don’t aren’t the existential threat they are now.

  8. Absorbing east Germany hurt a lot. From what I understand, Germany hasn’t completely recovered it either.

  10. Q: is socialism in one country even possible?

    Q: does Progress EVER occur in society in any form other than echelon? Do you propose yet another form of vangardism?

    Q: value: Marginalism or LToV?

    Q: can you avoid doing away with “bourgeoise rights” like those enumerated in the US BOR? How is freedom of speech possible under an authoritarian system where the state is your employer and also owns and controls all the meeting places, all the means of communication?

    Q: Stock markets under socialism: yea or nay? If nay, how will capital values be imputed? How will innovation be incentivized in your centrally-planned system? Where will the tacit information usually gathered and used by entrpeneurs come from once you disable the profit making function? Who will have the incentive to serve in this role? Do you believe you can substitute managerialism for entrepreneurism?

    Q: freedom of movement for workers? Or will this be the first socialist country that lacks barbed wire fences and machine gun turrets to keep its victims from escaping?

    Q: Your assessment of the Barrone/Pareto/Lange/Lerner/Taylor market socialism model?

    Or whatever. Give us the benefit of your wisdom.

    I challenge you to stay and make your case for capital consumption and eventual collapse AKA socialism

  11. say more socialist stuff

    Aside from the determinants of demand for native american slot machine gaming, I have no more favorite econ topic on which to fulminate.

    We could start with Barone/Pareto if you like.

  17. I read it. They’re not completely wrong — austerity often backfires in exactly that way, and when you beg people for money, you might not like the strings attached. However, they’re delusional about imagining that there is any way for them to keep their national sovereignty intact other than going back to having a currency of their own that they can deflate at will. If they could make their exports and tourism artificially cheap like they used to do with the drachma, then they could eventually work their way of the bind they’re in.

  18. I can see sudden government austerity causing trouble for the national economy in the short term, rather like a country after a war cancelling lots of armaments contracts and discharging many thousands of soldiers into the job market. However, over the long term, reduction of government spending is generally a good thing as it frees up all that capital for private investment. I think that the Greeks have (A) not had time to let austerity work and (B) aren’t exactly cooperating, probably in the expectation that Daddy… um, the ECB, I meant to say… didn’t mean it when he… it… cut up the credit card… er, imposed austerity.

  19. Outstanding Greek debt is just north of $400 bn. The balance sheets of Euro Area financial institutions have assets of $27,000 bn. This is a small part of the asset picture. Also, a great many private holders of Greek debt turned theirs in for a large haircut three years ago. Much of Greece’s debt is actually held by the European Central Bank.

  21. Correction, the outstanding debt is north of 300 bn Euros and banking, insurance, and fund assets amount to 27,000 bn Euros.

  22. They’re still collecting taxes to make payments on the debt; the austerity is purely on the spending side. The only way it’s freeing up capital is if there was a crowding out effect, which is highly unlikely in such a steep recession.

    What they need is to stimulate their economy by making it a better environment to invest in creating and expanding businesses, and they can’t do that as long as they’re being forced by technocrats to tax aggressively for the benefit of bondholders. That’s the bind.

  23. Yeah. I was thinking the same thing while reading this thread.

    And you know, some people are supposing that Tsipras is the Antichrist. I’m not one of them, but he could be AN antichrist, like The Occupant Who Shall Remain Nameless. My point here is that with an upcoming 7 year period of carnage, devastation and weirdness around the corner, I would expect a merciful God to allow some warning shots to be fired across the bow, judgment-wise, and that could be what we’re seeing unfold here. Though, of course, it’s also the natural result of on-going fiscal stupidity, so what do I know.

    And Germany could be pushed into a lose/lose position, too.

  25. Ugh. That’s putting it wrong. The “austerity” is on both sides, but restraint is only on the spending side, not the taxing side.

  26. Sounds pretty much accurate to me. And the fully “translated” document would’ve been a much more enjoyable read. They could’ve given us that, at least.

  27. This is what I like about you. You’re subtle. I can appreciate, and enjoy, this type of subtlety.

  29. Lefties love and worship failure. They want to level the playing field by making everyone just as hateful and miserable as they are.

  30. Love it when Wombat wields the Banhammer of Doom.

    It’s the sarcastically pleasant “bye now” at the end that makes it.

  31. I’d like to know more about where they are spending their money. According to one chart I’ve found, in 2010 they were spending 26% (!) of their budget on “social security and pensions”, another 10% on “health and welfare”, 8% on education, 7% on “local administration” and, of course, 20% on interest. In other words, their pensioners are getting rather a bigger slice of the pie than the bondholders. Incidentally, defense (which, IMO, is the largest item that a national government SHOULD pay for) is only 5.5%.

    http://t-government.blogspot.com/2011/06/greek-budget-visualisation-where-do.html

    Nor are they taxing especially aggressively:

    Greece ranked 16th out of 34 member countries in terms of the tax to GDP ratio in 2012 (the latest year for which tax revenue data is
    available for all OECD countries). In that year Greece had a tax to GDP ratio of 33.7% compared with the OECD average of 33.7%.

    http://www.oecd.org/ctp/tax-policy/revenue-statistics-and-consumption-tax-trends-2014-greece.pdf

    Part of this, apparently, is due to a MASSIVE black market. Gosh, wonder why…

    The Greek standard VAT rate is 23%, which is well above the OECD average. The average VAT/GST standard rate in the OECD was
    19.1% on 1 January 2014, up from 17.6% on 1 January 2009. Reduced VAT rates of 6.5% and 13% apply to many goods and
    services. In the last five years, 20 of the 34 OECD countries have raised their standard VAT/GST rate at least once. In line with this
    trend, Greece increased its standard VAT rate from 19% to 23% in 2010 and its reduced rates from 4.5% to 6.5% and 9% to 13%
    respectively.

    Ibid.

    Obviously, a couple of charts and statistics can’t tell the whole story, but it seems to me that the Greeks have put themselves into a position where they are going to have to fvck the hell out of their pensioners in order to get their budget under control. It’s a story we’ve seen here in some corporations, cities and counties, and likely will start to see in the states and perhaps the country before too long: people were promised very generous retirement benefits that no longer can be afforded. Who will be the one to suffer: the retirees or the current tax payers?

  32. What I’d really like for these occasions is an animooted GIF of Vampire Willow from Buffy saying “Bored now.”

  33. Heh. I’ve been known to post that exact text to leftist trolls one I’m done playing with them.

  36. I’m not predicting any numbers, but I think the effects will be bad. The exact trigger remains to be seen as well.

  38. Funny how things happen…
    Just now i was watching Good Will Hunting and called it quits so I could come read the blog.
    Now, reading your reply to Marysue Bobbymae or whatever he calls himself, I feel as though I just watched the bar scene again where Matt Damon schools the Havard snob who’s just been reciting the standard line.
    Well played sir, well played.

  39. Darn. Aside from living on the West Coast I work overseas and so never can attend blog meetups.

    Somebody owes me reparations. There’s got to be a Title IX violation in there, as well as a ton of microaggressions. And no trigger warning!

  41. I was actually hoping some might migrate south and eat those California minnows that the EPA loves enough to cause a man-made drought.

  46. Now…you stole that. We used to say when someone was really drunk, ” They were fvcked up as a football bat.”

    Now, that’s messed up! 😉

  48. I got it from my Brother. Since he was a Navy man, reckon that’s where he got it from. My bad. (I was Air Force.)

  49. The cascade threatened is the EU. They have much larger economies than Greece who are struggling with debt now; if Greece defaults, withdraws, and survives – as they will – it adds a tempting alternative for Spain, Italy, and Portugal, and even France is rebelling against austerity.

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