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How Greece got into a financial mess
Greek Prime Minister George Papandreou speaks during a press conference at the European Union summit at the European Council headquarters in Brussels.
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Kai Ryssdal: There weren't any protests or strikes in Athens, Greece today. It's amazing what a $41 billion loan package will do for you. The European Union has finally decided it's going to have to put up cold hard cash to protect the Greek government, and by extension, the euro from default -- $41 billion, as I said, is there for the taking. The IMF is offering another $20 billion if needed.
One thing that's not entirely clear is how more debt will help the Greeks with their debt problem. Not to mention solving the problems that got them here in the first place.
From the European Desk in London, Marketplace's Stephen Beard reports.
STEPHEN BEARD: When you're mired in debt and default seems possible, there's nothing like a multi-billion dollar loan to lift the spirits. And so it was in Athens today. The danger of default receded. The future cost of government borrowing fell sharply.
But Jan Randolph of IHS Global Insight here in London was not overly impressed with the rescue package.
JAN RANDOLPH: It's not a substitute for the hard graft, if you like, of actually getting your public finances back on to the straight and narrow and that's the difficult one.
Greece has one of the world's biggest budget deficits -- almost 13 percent of GDP.
Gikas Hardouvelis, chief economist with Greece's second biggest bank, blames the previous government for this.
GIKAS HARDOUVELIS: They were governing with a very slim majority. And they decided to throw money at everything. Every problem, and this is what made the deficit skyrocket.
Adopting the euro nine years ago fueled the spending spree. Greece saw its interest rates drop to German levels. Greek consumers joined in the borrowing binge. In the ensuing boom, says Hardouvelis, successive governments failed to curb the ballooning public sector and tackle the lack of competitiveness.
HARDOUVELIS: Simply, the euro area hid the problem. It hid it from the politicians and from people.
The politicians hid a lot, too. The previous government lied about its debts. Truth be told, the Greek people may also have been deceiving themselves. The problem, says commentator John Psarapolous, is the country's long history of state control. He says after only 20 years of full-blooded capitalism, the Greeks still don't get it.
JOHN PSARAPOLOUS: We still don't understand that in an open, capitalist, free market economy every debt is credited and every credit is debited. Everything at some point has to be paid for. I just don't think that's been in our culture.
He says the multi-billion loan package has given the Greeks a breathing space. Perhaps a year. But if they don't solve their economic problems, they could once again be staring default in the face.
In London, this is Stephen Beard for Marketplace.
Greece and Spain won't pay back. This was a calculated Risk, and a Lesson for the Banking System. What is happening in Greece, is a very well orchestrated show, to get granted €110bn aid, to avert meltdown.
The only thing Germans can do is:
REPOSSESS 170 Leopard 2AEX Battle Tanks from Greece, and 190 Leopard 2A6E Battle Tanks from Spain.
U.S.A must REPOSSESS 170 F-16 Jet Fighters from Greece, … the rest is gone with the wind …forever …
Greece must stop paying lucrative pensions with borrowed money, reform the free health care system, and cut down, 4 times the military budged.
Greece’s problem is too much debt. Greece has a budget deficit of 12.7% of GDP – meaning that the country is spending 12.7% more than the value of one year’s economic output.
Greece is no different to a serial credit card borrower who can’t pay back his loans. But just like a serial credit card borrower, as long as Greece keeps relying on borrowed money to fund itself, the problem won’t go away. It will just get worse.
http://www.defenseindustrydaily.com/Greece-in-Default-on-U-214-Submarine...
But don't worry; the ECB, the Fed or both will print the money.
And all of us will share the pain, with our hard-earned money.
Bad is never good until worse happens.
"The problem, ..., is the country's long history of state control."
Well duh! Some govt. control can be beneficial; too much leads to a spoiled electorate that assumes "someone else will pay for it". Ultimately, this is government by the selfish.
So, low interest rates allow people to invest in schemes they wouldn't try if they actually had to pay real money to get into them. It sounds like a case against easy money. And what about the American banks that helped Greece hide its debt with credit default swaps?
Let's talk about how America's new invention for export to other countries is credit defaults and other financial schenanegans to hide crushing debt. What does it mean for America's near future that the biggest thing we have to offer other countries is not clean energy or consumer goods or other needed things, but con games?
