Greece II or: How I learned to stop worrying and love the euro.

[Lummel]

Banking on tourism to save the Greek economy is hoping that doing even more of the same will somehow make the economic situation very different.

Increasing capacity is going to require attracting business at current slack period of the year, or building more facilities - where is the money going to come from for that but from overseas given current conditions?

OK over time it may produce more jobs in the economy (although given crowds of vomiting drunken British tourists at some cost) but won't necessarily produce much extra in the way of corporate tax revenue while Greece's immediate problem is centred around government debt.

Massive debt write downs would be more helpful and possibly given some years, if Greece votes for the package which apparently is no longer on the table, might be fudged into place if Eurozone leaders are confident that other Eurozone countries wouldn't agitate for them too.

[The Marquis de Leech]

Why is no one talking about it? A defaulting Greece seems ripe for it. Hyperinflation is as much a problem caused by mass psychology/panic than monetary policy. A new Drachma is issued, the middle class don't trust the left wing gov to maintain it's value, suspecting they'll print to pay for pensions and welfare. They hoard hard currency and refuse to accept the official exchange rate. The velocity of the new currency increases as folk try to constantly spend it as quickly as possible or exchange it for Euros, an inflationary spiral sets in. It seems very likely that a hyperinflation will take hold of a defaulting Greece which is why I suspect the Greek middle class are so keen to stay in the Euro.

Hyperinflations are associated with supply shocks, upheavals such as wars, and governments too weak to collect taxes. That isn't the case here - Greece is running a budget surplus, so there's no immediate prospect of a deficit needing to be funded by large-scale money printing.

[Solmyr]

As a non-Greek my immediate concerns are whether I should [have] diversify[ed] my liquid assets, which are currently primarily in Euro, in other currencies. I won't take a big loss either way, but it still irks. Probably too late for that now tho, besides the Euro is still useful as a nominal currency in my country and around Europe.

[Galactus]

Hyperinflations are associated with supply shocks, upheavals such as wars, and governments too weak to collect taxes. That isn't the case here - Greece is running a budget surplus, so there's no immediate prospect of a deficit needing to be funded by large-scale money printing.

Greece being unable to collect taxes has been precisely one of the major complaints.

[The Marquis de Leech]

Greece being unable to collect taxes has been precisely one of the major complaints.

Not on the scale of 1923 Weimar Germany. As I said, Greece is currently running a surplus.

[Relic]

I have wondered for years now why people have wished to continue going on cheap package holidays to Turkey. So I doubt people will stop now. I guess some people love cheap holidays more than anything else.

Or maybe it's because turkey is a beautiful country with a rich history and amazing locations to explore? maybe some folks don't choose to live in fear. I'll be in Turkey in a month and a half, and will stay there till November.

[Hereward]

dp

[Hereward]

Greece was running a tiny surplus, though that probably ceased in May, and that was largely by not paying any bill it didn't absolutely have to, wage arrears and zero capital spend. That's not sustainable, and anyway discounts the massive cost of the impending bank support. So, I'd have thought hyperinflation was a definite possibility.

[Fragile Bird]

Friends of mine went to Newfoundland for a week and saw three moose, Dal! :)

Sadly, most countries exclude economic refugees. :(

[The Marquis de Leech]

Greece was running a tiny surplus, though that probably ceased in May, and that was largely by not paying any bill it didn't absolutely have to, wage arrears and zero capital spend. That's not sustainable, and anyway discounts the massive cost of the impending bank support. So, I'd have thought hyperinflation was a definite possibility.

In cyclically-adjusted terms, Greece ran the largest surplus in Europe in 2014:

http://krugman.blogs.nytimes.com/2015/06/19/does-greece-need-more-austerity/

That means that any deficit will disappear when the economy recovers, and certainly would not be large enough to induce hyperinflation.

[Hereward]

Cyclically adjusted to a full employment state, which hasn't pertained to Greece in living memory, euro or no euro. So no, it doesn't mean the deficit will disappear when the economy recovers. It means the deficit will disappear if ever the economy can be made to run at 100% efficiency and the Grexit doesn't have any negative consequences.

[The Marquis de Leech]

It means that if the economy were running at potential, Greece would be running a surplus of over 5%. Seeing as all we're trying to do is get the Greek government to break even (or at least not go overboard with the printing presses), economic growth would take care of the deficit for these purposes. Considering that Greece has lost a quarter of its GDP in the last seven years, there's an awful lot of slack to make up before inflation even becomes an issue.

[Raja]

Or maybe it's because turkey is a beautiful country with a rich history and amazing locations to explore? maybe some folks don't choose to live in fear. I'll be in Turkey in a month and a half, and will stay there till November.

Yeah, that was a pretty strange comment. Haven't been myself but might be heading there in December/ January.

Btw, does anyone have any links to articles that sort of explain what's going on in Greece ( hopefully in a bit of detail) - I know Vox does a few of them, but I've been unable to find one to my liking.

[Lyanna Stark]

Or maybe it's because turkey is a beautiful country with a rich history and amazing locations to explore? maybe some folks don't choose to live in fear. I'll be in Turkey in a month and a half, and will stay there till November.

Nah, most people who go there from northern/western Europe are only concerned with a cheap package holiday where they have a pre-booked flight, and a pre-booked bus to the hotel where they have pre-booked rooms and often pre-booked meals. They go for the sun (the weather here is dodgy) and the booze and to spend a week or two away from the grind. They are often minimally interested in the fact that there is often a whole interesting country outside of their hotel swimming pool. Potentially they might go to the beach or go shopping, but that is generally about it. I know, cos I come from an area of white middle class to low middle class and this is de jeur. This goes for package holidays to locations like Mallorca, the Canary islands or Crete, as well as quite a few Turkish locations, mainly Antalya for Scandinavians (cos God forbid you'd have to mingle with other nationalities!! Oh and it is so inconvenient to not have the restaurant menus in your own language, natch).

While I personally would never do something like this, it is extremely common. I used to express bafflement at this behaviour which made people think I was an elitist.

/tangent, but a lot of tourists going to these locations go on package holidays and price is really important, cos they don't really care about much apart from sun + booze

[A Horse Named Stranger]

Back to topic.

Greece declared they will not (be able to?) to make the payment to IMF due on Tuesday.

Missed payment also means no new money from the IMF until the Greek state has paid up (for which they a month I think) before they are considered default and not arrears.

Now I am somewhat curious how Tsipras intends to keep the state afloat, without leaving the Eurozone. If he "wins" his referendum and his electorate votes No.

Russia will in all likelihood not bail him out. Neither will the US or China.

[jarl the climber]

So, most posters seem to think that the No vote will take the referendum and that its hard to predict the fallout from this to the international financial system. I suppose this should be interesting to watch, its hard to see a small country like Greece really causing waves in the worldwide economy. I guess if other countries are facing some of the same problems and its just the tip of the iceberg it sort of makes sense.

[Arataniello]

I suppose this should be interesting to watch, its hard to see a small country like Greece really causing waves in the worldwide economy.

Except that is exactly the point - its a worldwide economy. It;s not just Greece, it's the effect this is going to have on the entire Euro block, and at an individual country level will deal a blow to Portugal, Italy and Spain, which have all been tarred with the same brush ("weak southern European economies").

How can it be 'hard' to see the waves this will cause?

[jarl the climber]

Except that is exactly the point - its a worldwide economy. It;s not just Greece, it's the effect this is going to have on the entire Euro block, and at an individual country level will deal a blow to Portugal, Italy and Spain, which have all been tarred with the same brush ("weak southern European economies").

How can it be 'hard' to see the waves this will cause?

If it going to cause waves like this, why allow it to happen? Then I suppose you get the argument if you cut the Greeks a sweet deal you have to give Spain and the others a great deal as well. Is that worse than the alternative?

[The guy from the Vale]

Cutting them a deal probably wouldn't be worse per se. In fact, it might well be the cheaper way to go. It doesn't seem politically viable, however...

[Fragile Bird]

The financial crisis should be contained to Greece. Greece only represents 2% of the European economy. The EU should focus on Italy, Spain and Portugal now to make sure the contagion doesn't spread.

More worrisome are the geopolitical consequences if Greece turns to Russia for help. There are many left wingers in Greece who are either Marxists or sympathetic to Marxism who will likely push the government to go to the Russians. The idea that the Russians would say no does not seem reasonable. The Greek PM has already had discussions with the Russians about letting them build a pipeline through Greece to supply Europe with oil. Greece is strategically important, and letting the Russians have a foothold in Greece is very worrisome.