Hello, Dr. Evil here...

May 10, 2010 12:11 AM

Good morning, ladies and gentlemen. In a few hours, I will destroy the Greek economy. Unless, that is, you give me the sum of...one trillion dollars! (SLNYT, but with this much money I can afford to look frumpy)
posted by anigbrowl (61 comments total)

This was interesting and all but...

I threw up a little in my mouth when I read the quote "shock and awe". Suddenly, the article lost all credibility with me.
posted by _paegan_ at 12:55 AM on May 10, 2010 [2 favorites]

"In a few hours, I will destroy the Greek economy." And the premium on credit ratings that comes from being in the Eurozone. That too. It's worth paying a billion to avoid that.
posted by jaduncan at 12:56 AM on May 10, 2010

What a trillion dollars looks like.
posted by weapons-grade pandemonium at 1:04 AM on May 10, 2010 [18 favorites]

Yeah, um, good luck with that. The only "shock and awe" I felt was when I realized things must be really bad in Europe for them to need a bailout of a trillion dollars. I mean, you don't loan money to a country if they don't need it. I think my dog knows that.

Oh well, I guess socialism doesn't work. Too bad--it really is such a cute little form of government...
posted by stevenstevo at 1:07 AM on May 10, 2010

After reading that article all I could think of was Malor and his well known views on bailouts. It seems like the whole idea of this monetary union is a bit problematic, and I wonder how long they can keep it going. When Greece screws up again will there be another bailout? And another, and another, and another... At some point it has to stop, and then what?
posted by Kevin Street at 1:11 AM on May 10, 2010

Oh well, I guess socialism doesn't work. Too bad--it really is such a cute little form of government...

Not to jump the snark here, but wouldn't that logic imply that the US's own $700-billion bailout mean that free-market, hands-off poorly-regulated capitalism also doesn't work? Or what of "communist" China's ~$600-billion bailout?

(Not that I'd disagree with the idea that some of these systems are quite probably broken, but that's not my point)
posted by Arandia at 1:19 AM on May 10, 2010 [16 favorites]

The problem here isn't socialism, but unfettered free market capitalism.

The European Union is a union of social democratic free market states and the debt problem emerged as a result of the global financial crisis.

Socialism has got practically nothing to do with it.
posted by knapah at 1:30 AM on May 10, 2010 [31 favorites]

Oh well, I guess socialism doesn't work. Too bad--it really is such a cute little form of government...

Others have responded to your remarkably clueless comment sufficiently well I think. Really, how can you say such a thing when the U.S. system just went through an even larger bailout?
posted by JHarris at 1:40 AM on May 10, 2010 [3 favorites]

This is certainly a big one but don't be fooled by headline stories.

This morning as European bourses open higher and Markit iTraxx is tumbling back from record levels we're hearing market chatter that while Germany is giving with one hand, a back room deal has been struck. If the line isn't toed they'll (as in The EU) will probably be making an example out of certain member states.

In other words, The Other Exit Strategy, necessary to save the union. Interesting times.
posted by Mutant at 1:46 AM on May 10, 2010 [1 favorite]

The problem is having a single currency shared by governments who run separate fiscal and economic policies, isn't it? So if there's anything to be learned from across the pond, it's about the necessity of a strong federal component if you want to unite a large slice of a continent.
posted by Phanx at 1:51 AM on May 10, 2010 [1 favorite]

I think my dog knows that.
you suggesting your dog is smarter than a Greek economist? Because it's kinda looking like he damn well might be.
posted by From Bklyn at 1:53 AM on May 10, 2010 [1 favorite]

"Too much capitalism does not mean too many capitalists, but rather too few."
-GK Chesteron
posted by The Esteemed Doctor Bunsen Honeydew at 2:06 AM on May 10, 2010 [6 favorites]

I'll be shocked and awed if the special purpose vehicle expires after three years, just no way the E.U. will give that power back to member states. I've always liked how the euro established limits on states abilities to borrow excessively, too bad their ruining that.
posted by jeffburdges at 2:27 AM on May 10, 2010

"Quoting random old guys doesn't make you any more right"
-Me
posted by Damienmce at 2:40 AM on May 10, 2010 [10 favorites]

Isn't it against common wisdom that they actually did succeed in agreeing about such a huge issue in such a short notice? EU's decisionmaking was supposed to be crippled by national priorities, but this was an encouraging sign for our capability to play together.
posted by Free word order! at 2:50 AM on May 10, 2010

If this doesn't demonstrate to everyone just how broken the entire financial system is, you just hasn't been paying attention the last three years...
posted by tgrundke at 2:55 AM on May 10, 2010

Greece isn't helped by having a huge black economy and a collapse of its taxation system due to tax evasion
posted by fearfulsymmetry at 3:06 AM on May 10, 2010 [5 favorites]

I find it very interesting that they used the words "speculative attack". 100% accurate, but it signals a distinct shift in attitude to the attackers. Perhaps the days of governments clasping the many and various speculators and scammers to their ample bosoms and stroking as they gnaw and gnaw are coming to an end?
posted by aeschenkarnos at 4:02 AM on May 10, 2010 [1 favorite]

Isn't the core problem the fact that Greeks don't pay taxes? I'm not sure how you'll fix that by continuing to lend them money.
posted by jeffburdges at 4:08 AM on May 10, 2010 [1 favorite]

Saying "It's not socialism - it's capitalism!" is just as moronic as saying "Stupid socialamism!" The terms are unapplicable in a general sense. All of the countries in the Euro zone, and the United States, apply elements of both capitalism and socialism. The problem is one of mismanagement - either in the business sector or in the public sector. It doesn't mean that either system of government is inherently faulty, it means that whatever system you do choose to set up, you better be able to correct when things go wrong; a system that is unbalanced and puts too much power in one group will more likely see abuse and fraud. As fearfulsymmetry points out, uh, yeah, maybe socialism had something to do with Greece's problems, and maybe capitalism played a part, but you also have a country where nobody pays for anything above the board and so nothing is taxed - well, great, you have no tax revenue, how is a government supposed to function like that?
posted by (Arsenio) Hall and (Warren) Oates at 4:16 AM on May 10, 2010 [6 favorites]

If the Greeks have three to five years of severe economic pain ahead of them, it seems likely that they won't be able to simultaneously institute the kind of corruption reform needed to negate tax avoidance.

This also negates many of the claims often made in favor of a value added tax. If the Greeks are really managing to elude taxation at the levels alleged, they must be evading taxes all the way along the supply chain.
posted by anotherpanacea at 4:18 AM on May 10, 2010

Greece has lots of terrorists, right? What they need to do is have the government hire the terrorists to collect the taxes. Take a page from the Romans with tax farming.
posted by XMLicious at 4:27 AM on May 10, 2010

The problem is debt, plain and simple. There's too much of it, and until said debt is either paid down or defaulted upon the problem will grow and fester.

This is what we like to call "kicking the can down the road", hoping that someone else will engineer a solution. Unfortunately, you cannot grow your way out of a debt collapse if growth rates are simply unattainable and incapable of supporting the debt service.

Greece's other problem is two-fold: austerity measures that they will never maintain over the long term (or even short term) and Germany. The Greeks resent German austerity demands and the German voters themselves don't want any part of this problem.

The EU announcement has done little to correct the underlying problem, just as the US has failed to do. Both sides of the Atlantic have now successfully papered over the problems with yet more liquidity in the classic tale of giving the drunk another drink. This will not end well.
posted by tgrundke at 4:39 AM on May 10, 2010 [1 favorite]

These people look totally clueless to me - and I know nothing about international economy
posted by SamsFoster at 4:57 AM on May 10, 2010

Wow. A week ago it was $140 (Just for Greece). Then just last night I read that it was going to be $400 billion. Now it's $1t

The ECB was totally asleep at the switch. They were so enthralled at the idea of not ever doing anything "irresponsible" and "Not being affected by politics" that they let the situation spin way out of control.
posted by delmoi at 5:01 AM on May 10, 2010

(oh, and a couple weeks ago it was just going to be $60 billion, just for Greece)
posted by delmoi at 5:01 AM on May 10, 2010

Northern Europe has effectively seized control of southern Europe.
posted by fearfulsymmetry at 5:04 AM on May 10, 2010 [4 favorites]

Money money money money money, money money. Money money money money money, money money.Money money money: money money? money money. Money money money money money; money money:

1)Money
2)Money
3)Money

"Money money money money money, money money," Money.

Money, money money money money money, money money.
posted by larry_darrell at 5:47 AM on May 10, 2010 [12 favorites]

What a trillion dollars looks like.

Here's what it looks like on a check:

$1,000,000,000,000
posted by Pollomacho at 5:52 AM on May 10, 2010 [3 favorites]

Ah, silly Europeans. Don't you get it? You're not supposed to give bailout money to countries. You're supposed to give bailout money to huge corporate banks! I would've thought you'd understand this by now.
posted by koeselitz at 5:58 AM on May 10, 2010 [3 favorites]

So what's George Soros shorting this week? Only Dan Ackroyd and Eddie Murphy can stop him now.
posted by jfuller at 6:28 AM on May 10, 2010 [1 favorite]

As a Greek, let me spell out our problem for you. Greece is two countries:

• Public sector workers and private companies/entrepreneurs that deal mainly with the state. Our public sector is (at last count) 3 times (that's 300%) of the size of comparable European countries. Public sector salaries (at least for entry- and mid-level) jobs pay 20-30% higher than the private sector. Our best and brightest dream of a public sector job because it pays better, has better holidays and benefits and because it's for life. Now, public sector suppliers (pharma, IT, etc) overbill the state by 200-300% as a matter of course. If you're a public sector supplier your margins are easily 5-6 times that of your private sector competitors.
• Private sector employees and entrepreneurs. Everybody else. This includes about 1M immigrants (10% of the population; mostly legal or grey-area) that will work for less money than Greek-borns or for no benefits.

To top things off, state services are crap (surprised?). Greece consistently ranks last in the EU in education, health and public order. So, is there tax evasion? absolutely. If you were part of the latter group and enjoyed crappy services and got taxed at some of the highest taxation rates in Europe, wouldn't you cheat?

The fact that Greece is ready to go bankrupt is the least surprising thing ever. The problem is you can't just unwind an economy and a society build around such perverse motives and rewards.
posted by costas at 7:25 AM on May 10, 2010 [11 favorites]

To be fair, the intent is not to spend the trillion, but rather to have it available. Merely having access to credit makes the markets less jittery. Of course trillion dollar bail-out sounds so much more dramatic.
posted by caddis at 7:28 AM on May 10, 2010

The move to printing money is a signal that the EU has to create something more like a state to back the ECB.

This is the interesting part of fearfulsymmetry's link. Greece in particular, but the EU "perifery" states in general are going to be forced to give up (even more) fiscal soverignty than before. The price of the bailout is that your econmic and fiscal policy is run out of Brussels or Paris or Berlin. The EU becomes more like a national (con-)federation with this move and less like a trade zone.
posted by bonehead at 7:32 AM on May 10, 2010

This also negates many of the claims often made in favor of a value added tax. If the Greeks are really managing to elude taxation at the levels alleged...

You can't fool the Greeks, it's evasion all the way down.
posted by storybored at 8:11 AM on May 10, 2010

I find it very interesting that they used the words "speculative attack". 100% accurate, but it signals a distinct shift in attitude to the attackers.

Blaming speculators is a typical rhetorical ploy used in financial crises to divert attention from the underlying crappy incentives, lack of oversight, greed and corruption that were the real causes of the trouble.

Greece's immediate issue is that the big banks and moneyed institutions no longer trust that they'll get their money back. The speculators are merely pricing that uncertainty into the plunging value of Greek bonds.
posted by storybored at 8:18 AM on May 10, 2010 [1 favorite]

Take a page from the Romans with tax farming.

Tends to lead to Revolution.
posted by IndigoJones at 8:20 AM on May 10, 2010

Pollomacho: "Here's what it looks like on a check:

$1,000,000,000,000"

Listen, I'm not saying you don't have the money, but I'm gonna call your bank to make sure this clears.
posted by boo_radley at 8:35 AM on May 10, 2010

knapah : The problem here isn't socialism, but unfettered free market capitalism.

This planet has never seen such a thing.

You want a real scapegoat? Corporate protectionism.

So many here like to rip on Libertarianism for its pro-corporate dark side, but the reality comes out exactly the opposite. "Too big to fail"? Oh, no no no, my friends! Try "don't let the door hit you on the way out, Mr. CEO - Oh, and you can expect all the civil suits in the mail; hope you like ramen noodles and Spam".
posted by pla at 8:38 AM on May 10, 2010 [1 favorite]

To be fair, the intent is not to spend the trillion, but rather to have it available. Merely having access to credit makes the markets less jittery. Of course trillion dollar bail-out sounds so much more dramatic.

Caddis makes a good distinction, but it is one that will not be lost on the markets. This is akin to Hank Paulson's "bazooka" theory, that if you tell people that you've brought the proverbial big guns to the fight, they'll back down.

That's what the ECB is hoping occurs with their statement of willingness to use upwards of $1 trillion to backstop currencies and member states. The hope is that this calms markets and keeps the jackals at bay. The problem is what happens if the markets and jackals take the ECB up on the threat and actively tests them, especially in the bond markets.

Should Greece fail to implement and maintain austerity, should the German voters toss out their politicians for supporting this plan (Merkel already lost a major election Sunday as a result of the bailout), should the markets actively test the EU/ECB resolve, this could all end up being nothing more than words.

Debt. It all goes back to debt. Don't let anyone try to convince you otherwise.
posted by tgrundke at 8:46 AM on May 10, 2010 [1 favorite]

Listen, I'm not saying you don't have the money, but I'm gonna call your bank to make sure this clears.

...and this is very much a possible scenario. What happens when you not only call to verify the funds, but actually try to draw on it?

This is all just more messy intervention that is horribly distorting the already messed-up markets. The plunge from last Thursday demonstrated very clearly just how broken the financial markets are and this ECB move is only going to help aggravate the situation.
posted by tgrundke at 8:48 AM on May 10, 2010

This planet has never seen such a thing.

You want a real scapegoat? Corporate protectionism.

So many here like to rip on Libertarianism for its pro-corporate dark side, but the reality comes out exactly the opposite. "Too big to fail"? Oh, no no no, my friends! Try "don't let the door hit you on the way out, Mr. CEO - Oh, and you can expect all the civil suits in the mail; hope you like ramen noodles and Spam".

pla, you're right. I didn't really mean to say 'unfettered free market capitalism', more like 'crony capitalism'.

It was a rushed response to a pretty foolish statement.
posted by knapah at 8:53 AM on May 10, 2010

So many here like to rip on Libertarianism for its pro-corporate dark side, but the reality comes out exactly the opposite. "Too big to fail"? Oh, no no no, my friends! Try "don't let the door hit you on the way out, Mr. CEO...

Call me when Libertarians are against the "too big", then I'll praise them for supporting the "fail".
posted by Riki tiki at 9:11 AM on May 10, 2010 [1 favorite]

What a trillion dollars looks like.
Here's what it looks like on a check:
$1,000,000,000,000

It might be a trillion on a check, that's only a billion when written on a cheque.
posted by rokusan at 9:54 AM on May 10, 2010 [1 favorite]

You want a real scapegoat? Corporate protectionism.

So many here like to rip on Libertarianism for its pro-corporate dark side, but the reality comes out exactly the opposite. "Too big to fail"? Oh, no no no, my friends! Try "don't let the door hit you on the way out, Mr. CEO - Oh, and you can expect all the civil suits in the mail; hope you like ramen noodles and Spam".

Oh sure, something like that might happen if a die-hard ideologue like Ron Paul were president, but the results would be catastrophic in the short term. (Imagine 30% unemployment rather then 10% as all lending freezes up because no one trusts anyone's books)

The basic problem is that these things don't happen immediately. Sure Bear Sterns and Lehman brothers got taken down (but Bear still got $10 a share, they didn't keep the $2 figure). But the greater crisis wouldn't have come to a head with AIG. Goldman and others would have let them slow down their payments while they tried to unwind the defaults. And while they were doing that, they wouldn't be doing any new investing. Neither would anyone else.

Rather then a bunch of spectacular bankruptcies, you have a situation where you get a slow constriction of the economy as those at the top try stave off the inevitable. It could take years; meanwhile the economy ends up with a new 'stable point' of unemployment, from which it's hard to escape. Your fantasy of banksters reduced to nothing is just that. Of course at the same time the bankers will be doing all they can to tunnels as much cash into their own pockets as possible.

But realistically it doesn't matter how hard of a diehard libertarian gets into power, they're still going to get corrupted. They're still going to need campaign contributions.
posted by delmoi at 10:21 AM on May 10, 2010

I'm not seeing anyone explain exactly how Greece defaulting would hurt Europe? I'd assume they'd simply enact emergency taxes that kept critical services operational, yes? Who gets hurt financially? A few risky investment banks yes, but how much exposure do normal European banks face? Is it possible the only little people that'll get hurt are all the Greeks whose state pensions are defaulted on, well they've not been paying taxes anyways right?
posted by jeffburdges at 10:49 AM on May 10, 2010

jeffburdges: There are two problems with Greece defaulting, that I know of. One is the risk that if Greece goes, then anything is possible. Spain and Portugal could also end up defaulting on their debt. They both had huge housing bubbles as western europans moved there and bought property, and in fact were not particularly poorly managed like Greece.

But when the bubble burst, their revenues went way down, bringing in big debts.

The basic problem with government debt is that you can "support" a certain amount of it, but that amount is dependent on the interest rates you get. So if the interest rates go up, it becomes impossible to make payments without exploding the deficit even more. So even though you could maintain the debt at the lower level, you can't at the new level. That makes you more of a credit risk, and rates go up again.

So it wasn't Just Greece here, but a bunch of countries.

The other thing is that, Accoridng to Krugman Greece might not just default, but leave the Euro which obviously would collapse confidence in the currency itself. So there could be a lot of economic consequences for the whole eurozone.

The UK, which also has really high debts, has been having no problems at all, part of that is probably their historical reliability, but also the fact that they have their own currency helps.
posted by delmoi at 11:30 AM on May 10, 2010

$1 trillion? jeez.

i wonder where any of this money will end up? hey poor people, now you're gonna have to give even more money to the rich. just like you did in the UK, where we are more in debt than after the 2nd world war. trickle down? money sponge more like.
posted by marienbad at 11:33 AM on May 10, 2010

Greece leaving the Euro wouldn't really be a bad thing, especially if you ask the Germans, and frankly, Germany is loving the drop in value of the Euro because it is helping their export-driven economy. The big secret that nobody will admit to is that France and Germany secretly want the value of the Euro to slowly (slooowwly) decline to closer to parity with the $USD. The last 30 days' moves, however, were a bit dramatic and dangerous.

Greece leaving wouldn't collapse confidence in the Euro but the success and/or failure of this bailout sure will. If the ECB fails to contain rates and keep the Euro from dropping precipitously (today's currency action sure didn't help confidence there), then there will be a significant loss of confidence in general European governance, which indeed could be a big deal. In fact, Greece leaving the common currency might just be best for everyone: Germany would not have to support Greek spending habits and the Greeks would be able to devalue and pump exports to repair their balance sheet.

The problem is that Europe has shoehorned a group of states with wildly different fiscal and monetary histories into a common currency that the north tolerates because it reduces their cost of business within the EU and the south hopes will improve its access to northern markets. The reality is that exports have been hampered, and in a debt deflation downturn such as the one we're in currently, the state which can devalue quickest and first is usually most successful in minimizing damage.
posted by tgrundke at 11:59 AM on May 10, 2010 [1 favorite]

Devaluation is kinda the easy way out though. I don't see how the US would be better off with 50 state currencies. I'm from Europe, and have been through recessions both before and after monetary union over there and here in the US too.

Although I'm not an economist, my feeling is that while devaluation is superficially attractive - attract more tourists and FDI, import less while you put your economy back in order - it just creates other problems in the longer term. Smart people leave because they can't earn what they're worth, push your currency too low and people will just raise tariffs against your exports, domestic business is hampered by the cost of importing new equipment and so forth. The financial pain is somewhat mitigated in the short term, but at the expense of long-term competitiveness.
posted by anigbrowl at 12:31 PM on May 10, 2010

how much exposure do normal European banks face?

German and French banks carry a combined $119 billion in exposure to Greek borrowers alone and more than $900 billion to Greece and other countries on the euro-zone's vulnerable periphery: Portugal, Ireland and Spain. (WSJ)

Isn't the core problem the fact that Greeks don't pay taxes? I'm not sure how you'll fix that by continuing to lend them money.

A critical point. Transparency International estimates that 30% of Greece's GDP is undeclared. That's pretty mind blowing. Here's a great article that summarizes some of the shenanigans that go on there.

That article would be even funnier if it weren't for the fact that the Slovenian government also decided to dump a truckload of cash on Greece. (Per capita about €250 -- roughly the same as the Germans.) In the end, the joke is on the EU.
posted by Ljubljana at 12:37 PM on May 10, 2010

Is it possible the only little people that'll get hurt are all the Greeks whose state pensions are defaulted on, well they've not been paying taxes anyways right?

Almost, but not quite: Salaried workers and pensioners are the only people who can't easily misrepresent their income in Greece, and are the ones usually footing the bill when this kind of thing happens. With the measures so far, I'm saying goodbye to 15% of my annual income and I don't even see the money I pay for taxes: It gets collected by the state before I get my paycheck.
posted by Dr Dracator at 12:48 PM on May 10, 2010

Accoridng to Krugman Greece might not just default, but leave the Euro which obviously would collapse confidence in the currency itself. So there could be a lot of economic consequences for the whole eurozone.

Honest question: why is that a good choice for Greece? Their debt would still be Euro-denominated! And since this would also open up the potential of sovereign default again, they'd just have more trouble dealing with both bond vigilantes and their structural problems, all while dealing with massive capital AND labor flight. Which side of the border would you and your bank account want to be stuck on if it was your last chance to be a European?

The people who keep talking about Greece leaving the Eurozone seem like they're radically underestimating the costs to Greeks, who ultimately has to make the decision themselves.
posted by anotherpanacea at 1:26 PM on May 10, 2010

anotherpanacea -

Good point, and one of the reasons people like me are extraordinarily skeptical that the austerity package being imposed upon Greece will actually be implemented. Greece is drowning in debt and is structurally incapable of collecting enough revenue to service its existing debt.

This, of course, makes the current bailout all the more laughable: we've got a huge budget hole, can't seem to fill it and cannot collect enough tax revenue because people don't want to pay. Should we stop? Should we try to pay down the debt? Naw, let's go and make that debt bomb even bigger!

The Greeks could very well just default on their commitments and start from scratch. It would entail some pain, sure, but probably less ultimately than the austerity measures being proposed, which will only prolong the pain. For reference, see Argentina.
posted by tgrundke at 1:51 PM on May 10, 2010 [1 favorite]

The way I see it is like this: Greece has to change, this is the day of reckoning. The world financial crisis probably sped things up, but that time is now here. Because if nothing is fixed, Greece is going to start a chain reaction that will drag down a bunch of other European nations, and the EU will never allow that. So change will happen; new tax laws, economic restructuring, wage and prize freezes, whatever it takes.

Now there's two ways that the change can occur: from the top down or from the bottom up. Right now it looks like it's going to be top down, with the EU and the IMF making bail out money available in exchange for a loss of economic sovereignty. But in the long run top down changes never work very well in a democratic society, and if the Greek people resist the process of change it will probably make it impossible to properly fix anything.

So the best solution (imo) is bottom up change that comes from the Greek people themselves. That is: an honest debate on the alternatives available to them, followed by actions like devaluation or even default, and then picking up the pieces and doing things better next time. So there'd be a lot of short term pain and then the prospect of a better future. But they can't do that with the Euro as their currency, and who in their right mind would choose deflation and suffering when a bail out is available? So Greece would probably be better off (in the long run) if it wasn't part of the monetary union, and that may still end up happening if the top down changes don't work.
posted by Kevin Street at 2:42 PM on May 10, 2010

So many here like to rip on Libertarianism for its pro-corporate dark side, but the reality comes out exactly the opposite. "Too big to fail"? Oh, no no no, my friends! Try "don't let the door hit you on the way out, Mr. CEO - Oh, and you can expect all the civil suits in the mail; hope you like ramen noodles and Spam".

So, libertarians do not acknowledge systemic risk?
posted by krinklyfig at 3:12 PM on May 10, 2010

This, of course, makes the current bailout all the more laughable: we've got a huge budget hole, can't seem to fill it and cannot collect enough tax revenue because people don't want to pay. Should we stop? Should we try to pay down the debt? Naw, let's go and make that debt bomb even bigger!

The problem is that there are quite a few parties (and countries) besides Greece which would be severely affected if Greece defaulted. Did you see what happened to the market last Thursday? It was a rush for the exits. That will spread if we let the dominoes fall. It's not a matter of debt to solve debt. It's a matter of dealing with sovereign risk when you have a common currency among several separate economies and no way to print money for the sovereign who is teetering on the edge of failure.

The Greeks could very well just default on their commitments and start from scratch. It would entail some pain, sure, but probably less ultimately than the austerity measures being proposed, which will only prolong the pain. For reference, see Argentina.

That was not at all the same situation. The Euro is not going to be debased to that level.
posted by krinklyfig at 3:17 PM on May 10, 2010

It's not a matter of debt to solve debt. It's a matter of dealing with sovereign risk when you have a common currency among several separate economies and no way to print money for the sovereign who is teetering on the edge of failure.

Again, isn't this why we care about sovereign risk spreads? Just because Greece has a bad economy doesn't mean that Germany does! In the US, that'd be like comparing California and Utah: one's insolvent and one's running surpluses. This is what credit rating agencies are for: different entities have different risk!

It's times like this when I start to actually feel irritated by bond vigilantes: it's like any excuse for higher yields is equally acceptable, no matter how irrelevant. FUD pays, so we get more FUD.
posted by anotherpanacea at 3:27 PM on May 10, 2010

Mario Monti's report on the EU proposes a “grand bargain” under which France, Germany and others would accept the single market’s expansion in the services sector, energy and the digital economy, while the UK and its allies would accept a greater degree of tax policy co-operation.

He also calls for a single EU-wide patent.

So there are some other reasons to stick with the Eurozone/EU in some capacity.

It's the same old Lockean bargain: trade autonomy for economic growth.
posted by anotherpanacea at 4:49 PM on May 10, 2010

There are many positive things about the European Union and the Euro. They're wonderful ideas that have led to a lot of good, but I fear that the whole concept will be devalued. The world is full of nations, and we don't really need another. The EU should be something different (and maybe better): an exclusive club of nations with great benefits, but also stringent membership requirements. (Like a budget deficit that's no more than three percent of GDP, and so on.) And if members can no longer meet the requirements then they should be asked to leave, with the option to come back later when they've got their affairs in order. That way EU membership would continue be an ideal that all nations in Europe strive for, or strive to keep, and by doing so they would thrive through sensible financial governance. Surely that would be better than the creation of a new superstate with centralized control and homogeneous policies.
posted by Kevin Street at 11:34 PM on May 10, 2010 [1 favorite]

Kevin Street is absolutely correct - this is their day of reckoning when past sins need to be put right.

As for those who say that this stabilization fund is necessary to prevent contagion - pay close attention again to debt. I cannot stress enough that this is the fundamental problem being faced by sovereigns across the globe. The bond vigilantes are out for Greece, Portugal and to a lesser extent Spain and Ireland because these countries have structural economic flaws (growth based on massive debt spending) and show little capacity to repay this debt.

Unfortunately, it's a catch-22: reduce spending to improve the balance sheet and you risk a harder economic downturn. Keep spending as you have and the bond market will punish you. Damned if you do, damned if you don't and as history demonstrates most states have little tolerance for pain when it comes to debt deflation, hence the bond and currency market reactions.
posted by tgrundke at 5:22 AM on May 11, 2010