Eurozone debt crisis

[mulberryhawk]

I hear the argument but has there ever been a scenario before where a country has effectively been asset stripped to pay their debts.

There have been numerous instances of countries defaulting throughout history, why should future Greek generations lose their land and soverignty because bond investors failed to do their due diligence when allocating capital.

As far as I can see the risk that banks and private investors have taken in the financial crisis has basically been covered by central banks and effectively in the end the taxpayer. It just seems wholly unfair and unjust to me.

[Euler]

I hear the argument but has there ever been a scenario before where a country has effectively been asset stripped to pay their debts.

Germany after world war one to pay reparations.

http://en.wikipedia.org/wiki/World_War_I_reparations

[Iron]

It's a difficult one.

If I were George Osbourne, putting political considerations aside, I wouldn't sleep easily if I cut pensions at a time when fuel bills are going through the roof...

Jeff

While the private sector has had it's pension decimated it's only fair to see public sector pension come down a bit as well.

[mulberryhawk]

Ok I know the Greeks are guilty of some "fancy bookkeeping" but its hardly on the same scale of starting a world war.

The reparations were for all 'loss and damage' suffered by the Allies during the war.

All im saying is the forcible sale of a countries assets and in a sense their soveringty is dangerous territory.

It just seems pretty dictatorial by the EU and the IMF to make such demands on a countries population and expect them to do it for the "greater good" of the European banking sector.

[Iron]

Ok I know the Greeks are guilty of some "fancy bookkeeping" but its hardly on the same scale of starting a world war.

True, but the global financial system relies upon countries repaying their sovereign debt. If countries could get away with saying 'We've got a few economic troubles. We may pay you back at some point in the future, when we feel we can afford it', then no-one would lend to nations.

Would you repay your mortgage if their were no consequences for not doing so?

Another point is that, unlike the Versailles Treaty, where Germany were handed a fait accompli, this is a negotiated settlement. No-one is forcing the Greek government to do anything.

Jeff

[mulberryhawk]

The Greeks are not responsible for the global financial system though thats my point. What happened when Iceland or Agrentina defaulted, I dont recall there being calls for them to sell their real estate to cover their debts.

Surely bonds are issued as an investment security, if you invest your money there is an inherent risk there, it has to be a two sided coin.

I am aware of the contaigon situation but the "global finance system " as you put it has been abused by everyone from the politicians,to the credit ratings agencies, and those wonderful "masters of the universe" we all love to hate the bankers, but the ones singled out to be made an example of are the Greek people. Forced to sell their country`s future security in the form of important trading ports , energy suppliers and their tourisim industry in the form their Islands.

All im saying is that it seems unfair and unjust on the ordinary Greek citizen to have to swallow that particularily bitter pill

[Iron]

The Greeks are not responsible for the global financial system though thats my point.

True, but no-one forced the Greek government to take out loans that they couldn't afford to repay.

If someone takes out a loan and can't pay it back, that's not the bank's fault. So the bank can't be blamed if they have to take legal action to sell that person's property to recover their money. If they didn't, they'd go out of business. It's the same principle.

All im saying is that it seems unfair and unjust on the ordinary Greek citizen to have to swallow that particularily bitter pill

It's not an ideal situation, but I don't see a better alternative to decisions taken on behalf of a people by their democratically elected government.

Similarly, had Tony B liar had not invaded and occupied Iraq and Afghanistan, the money we spent in those countries could have been put towards paying off the national debt. It's just one of those things...

Jeff

[mulberryhawk]

And nobody forced Investors to buy Greek bonds . If you cant pay your morgage jeff you would probably declare yourself bankrupt. The bank took the risk in lending you the money (at a sufficient rate of interest) and therefore they went into the arrangement with their eyes open. Not to mention the fact that they would have factored it into calculations that a small number of morgage holders would default.

It seems its ok for PLC`s to declare bankrupsy without any clawing back of managerial bonuses or the fruits of their reckless management. So why should it be any different for Greece? Maybe I am being too lenient here but it seems to me its one rule for the ruling elite and one for the man on the street (in athens in this case)

[Iron]

Maybe I am being too lenient here but it seems to me its one rule for the ruling elite and one for the man on the street (in athens in this case)

The problem is that someone needs to take a haircut, and the ruling elite would argue that Greece didn't honour its commitments, so the burden should fall on them.

If Greece simply walks away from its debt, the implication isn't just that a few extremely rich bankers will have to make do with just one new Rolls Royce this year. There will be far wider implications - you might find this article interesting: http://blogs.telegraph.co.uk/finance/an ... -defaults/

Jeff

[mulberryhawk]

Jeff I know the situation is a mess,the wider implications will have a profound effect on the EU and the global economy on the whole.

I just cant understand why private investors who accepted risk in buying Greek bonds are being protected by the ECB while Greeces` future is being flogged off in a fire sale due to the profligacy of a few politicians.

Obviously there are references to be found to support both sides of the issue so heres one from the same source. I just think theres a moral question about whats being forced on the Greek people by European politicians.

http://www.telegraph.co.uk/finance/comm ... -euro.html

[Euler]

Markets are very worried this morning.

If the euro didn't exist Greece could devalue it's way out of this mess. This is the first real test for the euro. I guess the UK may be a bit insulated from the whole thing given we still have our own currency.

[superfrank]

If the euro didn't exist Greece could devalue it's way out of this mess. This is the first real test for the euro. I guess the UK may be a bit insulated from the whole thing given we still have our own currency.

Devaluation isn't a magic bullet though. It just locks in more expensive imports and discourages inward investment thus making it even harder for a country to compete longer term.

Greece could never compete on a level playing field with Germany. Sooner or later they will have to leave the Euro along with several others. God knows what happens to the debt then... much of it is owned by European banks.

[Iron]

This article compares the situation with the Lehmann collapse: http://www.telegraph.co.uk/finance/fina ... oment.html

Incidentally, I'd say that the markets are confident that another bail-out will materialise, given that the Euro has been rising sharply against the dollar this morning...

Jeff

Greece could never compete on a level playing field with Germany. Sooner or later they will have to leave the Euro along with several others. God knows what happens to the debt then... much of it is owned by European banks.

[superfrank]

The Euro has remained strong because the markets know that it will survive and will shed the PIIGS before too long.

I'm waiting for GBP/EUR at around 1.2 before going short again. I might have a long wait given the state of the UK economy!

[Iron]

The greatest gift to the Greeks might be to let them go it alone - Article by Boris Johnson

http://www.telegraph.co.uk/comment/colu ... alone.html

Jeff