European Debt Crisis - World Depression in the Making?

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Re: European Debt Crisis - World Depression in the Making?

Post by Drazzil »

LawBeefaroni wrote:If I can read between the lines, I think Drazzil is saying that a cheap currency will lead to lots more tourism and new manufacturing industries.

But I don't see that happening.

I see breakdown in public services and infrastructure, which would make tourism and manufacturing less appealing. And the cheap currency will just lead to high inflation with the Euro or USD being preferred.

The only way that the New Drachma would work the way Draz envisions is if they announce it far in advance and everyone immediately speculatively invests in manufacturing and tourism before it is rolled out. Which no one is going to do. They'll wait and see and by the time they do, Greece will be in the throes of hyperinflation.
That is a real possibility. Which is why you immediately pay all debts in the new Greek Drachma. New Drachma, new tax code, new business regulations. Greece should be open for business on day 1. Creditors become the first new investors, willing or not.

Regardless of what happens this sucks for everyone. Also, this one huge downfall of a globalized economy. Everyone depends on everyone.
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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

Drazzil wrote:
That is a real possibility. Which is why you immediately pay all debts in the new Greek Drachma.
Which would amount to a default, only without the cushion of still being in the EU. Because the NGD would be wortheless.


Drazzil wrote: New Drachma, new tax code, new business regulations.
What new tax code and business regs? Finally tax the shipping industry? Ok, it leaves. Now what?

Drazzil wrote: Greece should be open for business on day 1. Creditors become the first new investors, willing or not.
Being open for business and seeing any business are two entirely different things. Why would anyone (not forced to) invest a penny on day one? You have creditors who were brought in kicking and screaming and no one else. Can the infrastructure even support tourism at that point?
Drazzil wrote:Regardless of what happens this sucks for everyone. Also, this one huge downfall of a globalized economy. Everyone depends on everyone.
Agreed, but everyone depends on countries like Germany a hell of a lot more than countries like Greece.
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Re: European Debt Crisis - World Depression in the Making?

Post by stessier »

This may be part of the problem. From the Atlantic -

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Re: European Debt Crisis - World Depression in the Making?

Post by Moliere »

A stampede of the elderly. Reminds me of a South Park episode.

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Re: European Debt Crisis - World Depression in the Making?

Post by Drazzil »

LawBeefaroni wrote:
Drazzil wrote:
That is a real possibility. Which is why you immediately pay all debts in the new Greek Drachma.
Which would amount to a default, only without the cushion of still being in the EU. Because the NGD would be wortheless.


Drazzil wrote: New Drachma, new tax code, new business regulations.
What new tax code and business regs? Finally tax the shipping industry? Ok, it leaves. Now what?

Drazzil wrote: Greece should be open for business on day 1. Creditors become the first new investors, willing or not.
Being open for business and seeing any business are two entirely different things. Why would anyone (not forced to) invest a penny on day one? You have creditors who were brought in kicking and screaming and no one else. Can the infrastructure even support tourism at that point?
Drazzil wrote:Regardless of what happens this sucks for everyone. Also, this one huge downfall of a globalized economy. Everyone depends on everyone.
Agreed, but everyone depends on countries like Germany a hell of a lot more than countries like Greece.
No it wouldn't. Plenty of countries come back from bankruptcies all the time. New tax code and infrastructure are key. I would put forward that this would have to be a selling point here. Tax reform, spending reform, entitlement reform. I would venture that the rest of the EU would have to enforce this bargain on both ends. Infrastructure is key. If Greece so unimportant, exactly how is this tiny country on the verge of forcing the EU, if not the world into a depression?
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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

Drazzil wrote:
No it wouldn't. Plenty of countries come back from bankruptcies all the time. New tax code and infrastructure are key. I would put forward that this would have to be a selling point here. Tax reform, spending reform, entitlement reform. I would venture that the rest of the EU would have to enforce this bargain on both ends. Infrastructure is key. If Greece so unimportant, exactly how is this tiny country on the verge of forcing the EU, if not the world into a depression?
Where did I say they were unimportant? I said they were less important, economically, than Germany. I even said "agreed" to you statement about interdependency.

But how exactly will this new infrastructure develop with no money to fund it?

Entitlement reform? If they BK their entitlement programs are busted, gone. They're not going to be able to squeeze savings from something that doesn't exist. Your plan has a lot of carts before a lot of horses.

Tax reform. You keep mentioning this. What do you mean and how will it be reformed? Presumably the end goal is "more tax revenue" but how are they going to get there?
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Re: European Debt Crisis - World Depression in the Making?

Post by Grifman »

Drazzil wrote:If Greece so unimportant, exactly how is this tiny country on the verge of forcing the EU, if not the world into a depression?
Because it's not. Greece's economy is 2% of that of the EU, it's just not that important. Since the crisis started, everyone has had plenty of time to largely insulate themselves from Greece's collapse - except for the Greeks of course.
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Re: European Debt Crisis - World Depression in the Making?

Post by hepcat »

An analyst on NPR the other day was saying that Greece overestimated the fallout from their situation. They had planned on using that as leverage for better bail out offers, but that didn't work out so well for them.
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Re: European Debt Crisis - World Depression in the Making?

Post by coopasonic »

hepcat wrote:An analyst on NPR the other day was saying that Greece overestimated the fallout from their situation. They had planned on using that as leverage for better bail out offers, but that didn't work out so well for them.
Note above where Greece also thinks Greeks are the hardest working.
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Re: European Debt Crisis - World Depression in the Making?

Post by Rip »

coopasonic wrote:
hepcat wrote:An analyst on NPR the other day was saying that Greece overestimated the fallout from their situation. They had planned on using that as leverage for better bail out offers, but that didn't work out so well for them.
Note above where Greece also thinks Greeks are the hardest working.
I assume the thinking is the few Greeks who actually work are hard working....
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Re: European Debt Crisis - World Depression in the Making?

Post by Isgrimnur »

They were the only ones that had a working phone to be reached for the survey.
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Re: European Debt Crisis - World Depression in the Making?

Post by Kraken »

coopasonic wrote:
hepcat wrote:An analyst on NPR the other day was saying that Greece overestimated the fallout from their situation. They had planned on using that as leverage for better bail out offers, but that didn't work out so well for them.
Note above where Greece also thinks Greeks are the hardest working.
I read somewhere that the average employed Greek works 600 more hours per year than the average German. They might not work harder, and a significant percentage don't work at all, but they do work more.

Two or three years ago the Grexit could have been calamitous. Bankers have largely quarantined the Greek economy since then. Things are going to get unpleasant in Greece whichever way this turns out, but those who are rooting for a world depression should look elsewhere.
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Re: European Debt Crisis - World Depression in the Making?

Post by Grifman »

I'm amazed that the Greek govt still thinks that the EU is going to throw them a line. The govt is campaigning against the proposal to accept the EU conditions, arguing that it will give them more leverage to renegotiate the bailout terms. Haven't they tried that before? What pressure will a Greek "no" really give them? The govt is badly overplaying their hand.
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Re: European Debt Crisis - World Depression in the Making?

Post by em2nought »

Maybe while the banks are closed Greece should just take 15% of all the citizens money since they're ALL supposedly tax cheats anyway. :mrgreen:
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Re: European Debt Crisis - World Depression in the Making?

Post by Pyperkub »

Grifman wrote:I'm amazed that the Greek govt still thinks that the EU is going to throw them a line. The govt is campaigning against the proposal to accept the EU conditions, arguing that it will give them more leverage to renegotiate the bailout terms. Haven't they tried that before? What pressure will a Greek "no" really give them? The govt is badly overplaying their hand.
You do need to make the distinction between the EU and the IMF in this case, I believe that the EU creditors were willing to cut a deal, but it was the IMF's demands which scuttled the deal.

The IMF has a history of being to the benefit of larger countries at the expense (often through corruption and usurious terms) of smaller/developing countries. Example.

When working a group class on Globalization a couple of years ago, multiple professors in both International Relations and Economics had some really, really bad things to say with regards to the IMF and some of the adverse effects of Globalization, particularly in terms of the types of restrictions it forces upon smaller/developing countries and other adverse behaviors on the part of the IMF.

In this case, I think that the IMF will end up having scuttled perhaps the best deal that would have been available, and that both Greece and her creditors will be the worse off for it.
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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

Don't underestimate the overall public sentiment in the EU either. The "hardest working" chart above shows it. And don't forget that Greece cooked their books to gain admission to the EU in the first place. You know German, French, etc citizens haven't forgotten.

There is a deep distrust of Greeks and their promises and their financials.
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"Take the Greek state railway. It was losing a billion euros a year," Ms Xafa remembers.

"The Greek railway had more employees than passengers. A former minister, Stefanos Manos, had said publicly at the time that it would be cheaper to send everyone by taxi."

The authorities used a neat conjuring trick to make the problem vanish.

"The [railway] company would issue shares that the government would buy. So it was counted not as expenditure, but as a financial transaction."

And it did not appear on the budget balance sheet.

So Greece fulfilled the Maastricht criteria and was admitted to the eurozone on January 1, 2001 - but by 2004 the deception was becoming transparent.
But as it became apparent, Athens was building for the Olympics. So...borrow.
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Re: European Debt Crisis - World Depression in the Making?

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LawBeefaroni wrote:Don't underestimate the overall public sentiment in the EU either. The "hardest working" chart above shows it. And don't forget that Greece cooked their books to gain admission to the EU in the first place. You know German, French, etc citizens haven't forgotten.

There is a deep distrust of Greeks and their promises and their financials.
BBC in 2012 wrote:So how did this 'magic' work?

"Take the Greek state railway. It was losing a billion euros a year," Ms Xafa remembers.

"The Greek railway had more employees than passengers. A former minister, Stefanos Manos, had said publicly at the time that it would be cheaper to send everyone by taxi."

The authorities used a neat conjuring trick to make the problem vanish.

"The [railway] company would issue shares that the government would buy. So it was counted not as expenditure, but as a financial transaction."

And it did not appear on the budget balance sheet.

So Greece fulfilled the Maastricht criteria and was admitted to the eurozone on January 1, 2001 - but by 2004 the deception was becoming transparent.
But as it became apparent, Athens was building for the Olympics. So...borrow.
Yeah. Perhaps you are right Lawbeef. The Greeks are holding the middle finger with one hand and an outstretched palm with the other.
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Re: European Debt Crisis - World Depression in the Making?

Post by em2nought »

Kraken wrote: I read somewhere that the average employed Greek works 600 more hours per year than the average German. They might not work harder, and a significant percentage don't work at all, but they do work more.
If they cheat on taxes as much as I've heard, maybe they cheat the time clock also. :mrgreen:
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Re: European Debt Crisis - World Depression in the Making?

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Yes, but cheating is hard work too.
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Re: European Debt Crisis - World Depression in the Making?

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Jaymann wrote:Yes, but cheating is hard work too.
Yes cheating is extremely hard work. :lol:
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Re: European Debt Crisis - World Depression in the Making?

Post by Kraken »

Preliminary results say the the Greeks said No to the bailout proposal that was withdrawn, and by extension No to any more austerity measures. :pop:
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Re: European Debt Crisis - World Depression in the Making?

Post by em2nought »

Get the Ju-52s ready! :ninja:
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Re: European Debt Crisis - World Depression in the Making?

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This isn't over. Not by a long shot
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Re: European Debt Crisis - World Depression in the Making?

Post by em2nought »

According to that chart Germans would make awesome slaves, and that's sort of what they are if they're working to put tzatziki in Greek mouths. Germans = best slaves ever!
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Re: European Debt Crisis - World Depression in the Making?

Post by Moliere »

France is next?

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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

Moliere wrote:France is next?
Interception between French Finance, Economy and Trade Minister Pierre Moscovici and Senator Martial
Bourquin (both from ruling Socialist Party) reveals that the Minister believed that the French economic
situation was “worse than anyone [could] imagine and drastic measures [would] have to be taken in the
next two years”. This interception is in July 2012 and topic is pressure on the Finance Minister to reestablish
a pre-retirement unemployment supplement known as the AER. Bourquin warns Moscovici that
if AER program is not delivered it might push voters to right-wing party National Front. Moscovici
disagrees and asserts that grave situation at faltering auto maker Peugeot Citroen is more important then
AER. He further points out that the government must find additional 33 billion Euros for the forthcoming
2013 budget and warns that 2014 will also be a bad year. The Senator warns Moscovici that the Socialist
Party could find itself in a situation similar to that of Socialist former Spanish President Zapatero.
Moscovici countered that the French government would rather emulate Social Democrat former German
Chancellor Gerhard Schroeder.
So in 2012, they argued that by 2014 shit will go pear? Has this actually come to pass? Because if not, they were wrong. The chart shows stocks rebounding, despite higher joblessness, from 2012 to now.

Not that higher equities prices mean everything is fine but this is a 3 year old intercept predicting immediate problems.
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Re: European Debt Crisis - World Depression in the Making?

Post by Enough »

Just saw a NYT article reminding me that post war Germany managed to negotiate their debts down to half of their original amount. Not exactly apples to apples, but still a thing that makes me go hmmm.
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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

Enough wrote:Just saw a NYT article reminding me that post war Germany managed to negotiate their debts down to half of their original amount. Not exactly apples to apples, but still a thing that makes me go hmmm.
They had also lost around 8 million people to the war and about 10 million more and 1/3 of their land to the Soviets.

Greece...overcommitted to future liabilities and lied about their financial status while not bothering to collect revenue.
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Re: European Debt Crisis - World Depression in the Making?

Post by Enough »

LawBeefaroni wrote:
Enough wrote:Just saw a NYT article reminding me that post war Germany managed to negotiate their debts down to half of their original amount. Not exactly apples to apples, but still a thing that makes me go hmmm.
They had also lost around 8 million people to the war and about 10 million more and 1/3 of their land to the Soviets.

Greece...overcommitted to future liabilities and lied about their financial status while not bothering to collect revenue.
Agreed and that's why I stressed it's not a perfect comparison (as does the article) but even with that there is still plenty of hmmm to go around. ;-)
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Re: European Debt Crisis - World Depression in the Making?

Post by Pyperkub »

There were also serious security implications at the start of the cold war.

One can also make the argument that the post-ww1 war reparations debt of Germany was a huge factor in the Nazi rise to power.
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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

Pyperkub wrote:There were also serious security implications at the start of the cold war.

One can also make the argument that the post-ww1 war reparations debt of Germany was a huge factor in the Nazi rise to power.
Yeah, I was going to throw the failure of Versailles in there. Definitely a factor but the debt forgiveness was several years after the instrument of surrender.
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Re: European Debt Crisis - World Depression in the Making?

Post by malchior »

LawBeefaroni wrote:Greece...overcommitted to future liabilities and lied about their financial status while not bothering to collect revenue.
And on the other side - there were plenty of banks who were all too happy to rush in and offer them credit (without the proper due diligence) even with these issues. And their current unsustainable debt state is certainly partially maybe even mostly a function of TERRIBLE economic medicine - i.e. the "reforms" cut their economy by about a quarter while debt continued to increase. They are falling further behind - at some point it has to be recognized that they can't actually dig out. Also, youth unemployment around 50% also exacts a severe long-term toll on the country. IMO finger wagging that they are fiscal miscreants doesn't solve any problems - no matter how true it is.

It is beginning to become apparent that the possible real problem is simply that being on the euro is a terrible idea for any nation that faces a slump or becomes less competitive for *any* reason whatsoever. Especially since they are stuck in a monetary union with a country obsessed with zero inflation dominating it. The trouble countries have no way to devaluate the currency - e.g. Spain and Ireland getting reamed on the bond markets even though they were relatively fiscally responsible. I don't see how it'll survive long-term. They'll eventually face a crisis that'll rip it apart if this isn't it.
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Re: European Debt Crisis - World Depression in the Making?

Post by LawBeefaroni »

malchior wrote:
LawBeefaroni wrote:Greece...overcommitted to future liabilities and lied about their financial status while not bothering to collect revenue.
And on the other side - there were plenty of banks who were all too happy to rush in and offer them credit (without the proper due diligence) even with these issues. And their current unsustainable debt state is certainly partially maybe even mostly a function of TERRIBLE economic medicine - i.e. the "reforms" cut their economy by about a quarter while debt continued to increase. They are falling further behind - at some point it has to be recognized that they can't actually dig out. Also, youth unemployment around 50% also exacts a severe long-term toll on the country. IMO finger wagging that they are fiscal miscreants doesn't solve any problems - no matter how true it is.
Greece's problems are primarily financial, perhaps some social. They aren't trying to claw back from a defeat in a devastating war. Are their problems all their own of their own doing? No. No one is guiltless, of course. I was just making a point about the post-war Germany comparison.

If Greece is the homebuyer who overextended on a stupid jumbo loan they couldn't afford then the "stable" EU nations are the banks that gave them the stupid jumbo loan they couldn't afford and poisoned the system with the toxic debt. Greece's main problem is that they aren't the one that is too big to fail.
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Re: European Debt Crisis - World Depression in the Making?

Post by Pyperkub »

I believe this article illustrates that point nicely:
Stop me if you’ve heard this one.

The Greeks, Italians, Spaniards and Irish walk into a bar, where the French and Germans are the bartenders. It’s happy hour, and the Germans and the French are serving half-price drinks. Although everyone quickly drinks too much, the bartenders keep on serving. Eventually, the inebriated customers head home and get into all kinds of trouble -- fights, car accidents, some broken windows.

So who’s to blame? Clearly, the Greeks shouldn’t have drunk so much. However, the French and Germans also shouldn’t have served the Greeks when they were clearly drunk -- especially if the French and Germans mind having broken glass in their neighborhood.

Unfortunately, this isn’t much of a joke.
Some of the reasons for the crisis are obvious to anyone who looks. Greece has a lot of well-recognized economic problems: Its public sector is bloated and marred by corruption, and many analysts say that the country cooked its books to hide the real amount of debt from the rest of Europe...

...There are also many well-documented problems stemming from the design of the euro zone itself – that the countries share a common currency even though they have different tax-and-spending policies. So that means that even though Greek workers aren’t as economically competitive as Germans, Greece can’t lower the value of its currency to make its products cheaper abroad and stimulate exports.

There are some other ideas about the deeper origins of the Greek crisis that you may be less familiar with.

Once the Greeks joined the euro in 2002, they could borrow at very cheap rates given they were now borrowing under the continent's implicit guarantee, and they dramatically over-borrowed.

"But given that there was high growth, no one was really worried about it,” ..

...Between 1998 and 2007, Greece's annual economic growth per person was 3.8 percent -- the second fastest rate in Europe.

But there were weaknesses within. The booming economy in Greece and other countries such as Ireland and Spain caused prices to rise, and the countries gave generous pay rises to their workers, which made their exports more expensive. That made the countries less competitive, but since they were growing so fast, it didn't matter too much.

Then the financial crisis hit. ''

...Matthijs says there is a lesser known narrative he finds more compelling. Basically, he says, it helps to explain why the bartenders kept on serving.

In the mid-1990s, even before it came into existence, markets made a huge bet that the euro would be a reality. Specifically, investors, many in northern Europe, bet that interest rates in northern and southern Europe would converge. At the time, interest rates in southern Europe were much higher than in northern Europe, simply because people thought investing in countries like Greece was much riskier than investing in countries like Germany.

In anticipation of the euro zone, investors put lots of money in the cheap, high-yielding bonds of southern Europe. That helped to drive down yields and fueled borrowing and an economic boom in southern countries.

Ultimately, investors were right – Greek interest rates on 10-year bonds fell from around 20 percent in the early 1990s to only 3 percent in 2002. “They made a lot of money in the north betting against higher interest rates there. That fueled the boom, before the euro came, that overheated these economies."
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Re: European Debt Crisis - World Depression in the Making?

Post by malchior »

If the latest news is true - Europe just managed to kick the can a little further down the road but the fall is still coming.
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Re: European Debt Crisis - World Depression in the Making?

Post by GreenGoo »

malchior wrote:
LawBeefaroni wrote:Greece...overcommitted to future liabilities and lied about their financial status while not bothering to collect revenue.
And on the other side - there were plenty of banks who were all too happy to rush in and offer them credit (without the proper due diligence) even with these issues.
While I realize personal finance is not applicable, no one is taking credit card companies to task for happily giving individuals enough rope to hang themselves.

There was some public opinion backlash to banks for over lending mortgages, but even with that criticism, public money was used to bail out most of them.

What I'm getting at, I guess, is that we see this exact same behaviour on a personal or household level every day. It's par for the course. Now Greece is floundering and Germany wants its money, but why do we expect countries to behave any differently from what we've decided is accepted normal behaviour? Because they're big? Because they should know better? Because the consequences are more dire than a personal bankruptcy?
malchior
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Re: European Debt Crisis - World Depression in the Making?

Post by malchior »

Holy cow. What complete insanity. Tsipras really fucked up. Leaving the Euro had to be better than this madness. I am wondering when this time bombs will go off in everyone's faces...maybe another 2 years?
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Isgrimnur
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Re: European Debt Crisis - World Depression in the Making?

Post by Isgrimnur »

Reuters
European Council President Donald Tusk announced just as trading started that after months of tortuous negotiations, marathon overnight discussions had produced the third bailout deal in five years for Greece.

"The agreement was laborious, but it has been concluded. There is no Grexit," European Commission President Jean-Claude Juncker told a news conference after 17 hours of bargaining.
...
Greek Prime Minister Alexis Tsipras finally won conditional agreement to receive a possible 86 billion euros ($95 billion) over three years, but he had to pay a high price.

Fifty billion euros ($55 billion) worth of Greek state assets - including recapitalized banks - will have to be put into a trust fund beyond the government's reach, to be sold off primarily to pay down the national debt.
It's almost as if people are the problem.
malchior
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Re: European Debt Crisis - World Depression in the Making?

Post by malchior »

Interesting article with an interview with Yanis Varoufakis. Definitely does not sound like the madman that he was painted as in the MSM. It sounds to me like he was just an outsider who didn't speak the same language as the people he was negotiating with. A smart guy to be sure who is probably technically right but simply wasn't the right choice for the job. He conceded many the important things in this interview - that the Government still needs reforming, that they didn't have viable alternatives to allow them to not take a bad deal, and I'm sure he has to be cursing up a storm because they are 'extending and pretending' like he mentioned in the interview. The future for the Greek state and probably Europe eventually is looking pretty bleak despite all the hurrahs that a 'deal has been struck'.
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Moliere
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Re: European Debt Crisis - World Depression in the Making?

Post by Moliere »

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"The world is suffering more today from the good people who want to mind other men's business than it is from the bad people who are willing to let everybody look after their own individual affairs." - Clarence Darrow
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