Thursday, February 16, 2012

Why Is Greece Still In The Eurozone?

Why, oh why, is Greece still in the Eurozone? Two stories from the Beeb yesterday:

Eurozone crisis: Greece 'can't take any more cuts'

The Greek people have been pushed to the limit by austerity measures demanded by the EU and IMF, public order minister Christos Papoutsis says.

He said Greeks had made "superhuman" efforts, and "can't take any more"…

…Greece has been told to make deep cuts in return for a huge bailout package.

Athens is negotiating the terms of a 130bn euro ($170bn, £109bn) deal with the EU and IMF.

The Greek parliament approved an austerity package on the weekend, despite violent protests sweeping the country.

But eurozone ministers demanded a further 325m euros of cuts and insisted that all major Greek parties promise to enact the cuts regardless of who wins a general election scheduled for April.


Eurozone states want Greece out, says Venizelos

Some eurozone countries no longer want Greece in the bloc, Finance Minister Evangelos Venizelos has said.

He accused the states of "playing with fire", as Greece scrambled to finalise an austerity plan demanded by the EU and IMF in return for a huge bailout…

…A Greek official told the BBC that 325m euros of extra savings had been made with cuts from defence, health and local government budgets…

…One eurozone finance official told AFP news agency that Wednesday's conference call would draw up "an inventory of what Greece has delivered, and checking if it is enough"…

…But the austerity plan has been hugely unpopular in Greece.

Anger boiled over during Sunday's vote in parliament, when large groups of protesters clashed with riot police and dozens of buildings were set on fire in Athens.

And eurozone countries appear to be running out of patience with Greece…

…Unnamed eurozone officials were quoted as suggesting that Greece's latest assurances still may not be enough, because people no longer trusted the country's politicians.

Greece has failed to deliver on many of the promises it made to secure an earlier bailout deal, EU officials say…

…However, the BBC's Matthew Price in Brussels says there is a growing sense among eurozone members that if Greece did leave it would not mean the collapse of the euro.

…and meanwhile, the human cost while the politicians and bankers argue (from the second article):



Why, oh why, is Greece still in the Eurozone?


  1. Hisham, what would happen if Greece defaulted in an orderly manner? To creditors & to greece. Would it be better for all? At least there would be closure and creditors could start writing down debt.

    Or are we talking about mayhem and chaos?

  2. Actually, the restructuring that Greece is negotiating right now is effectively an orderly default. When creditors are getting 50% or more haircuts, that's a default in my book.

    But since the EU is arm-twisting everyone into "voluntarily" accepting the proposals, they're avoiding a technical default, which would trigger payouts of credit default swaps - if that ever happens, prayer is probably called for.

  3. LOL. So in other words, could we say CDS is a pointless insurance? Since it is insuring against defaults and typically underwrite the debts of *large-ish* borrowers only. Result is every time there is such a default, it is on a scale too big for the issuer to honor what they underwrote.

    So it becomes another (in practice) pointless financial instrument which only serves to raise the costs of transactions since u can't pass on the risk anyway. Betulkah?

  4. Something like that - though it's probably still useful for individual corporate borrowers. And CDS rates also serve a useful role in gauging perceptions of risk.

  5. The Greek parliament approved an austerity package on the weekend, despite violent protests sweeping the country.The restructuring that Greece is negotiating right now is effectively an orderly default.

  6. I read in the NYT yesterday that exchange-rate sensitive exports is only about 10% of the Greek economy, and trade is only a small component of the economy. This presents less of a case for expulsion/secession of Greece.

    So, the case for expulsion cannot arise from devaluation argument. Rather, it should come from fiscal condition and health of the Euro.

  7. I suspect that's because most of the trade is with the rest of the Eurozone - there's no exchange rate sensitivity to measure. And don't forget services, as Greece is a big tourism destination. The potential impact actually looks pretty big.

  8. Maverick economist Michael Hudson on the Greek Experiment