Should the Greek government have continued lying?

[Beet]

It is my understanding that prior to the present government's coming into office, the previous government covered up the 13% deficit of GDP and pretended it was more like 3%. After coming into the office, the new government came clean.

Since then the deficit has been slashed by 40% in just one year (watch US politicians try to do that!)

Yet Greece is about to collapse. I don't think most people realize how serious the situation is there. There is a silent run going on the country's banks, and GDP is about to go into a deep dive, which will in turn destroy revenues. The government pretty much needs to announce across the board 50% spending cuts on top of what it has already done and balance the budget by the end of the year, and even that may not be enough.

This naturally raises the question though-- was the previous government right to lie about the deficit? For example, Greece could have continued to lie about the deficit and cut spending more slowly, while borrowing more cheaply. A great deal of anger has come out the recent crisis about ponzi schemes and Wall Street firms hiding balance sheet problems. Yet the Greek experience shows that dishonesty pays, while honesty leads to doom.

[Barnes]

I have a question:

Did the previous government lie so they could try and save their own skins, or did they do it to preserve some confidence in the economy?

[Beet]

It doesn't really matter. It's possible that they covered it up for as long as they possibly could and keeping up the charade for much longer would not have been possible anyway.

Besides, it's not like yields spiked right after the revelation into crisis levels. It's taken months, months in which it is slowly being revealed that the political will does not exist to take the steps necessary, to reach where we are today.

I just can't help but think that there are other governments watching this...

Anyway, like I said, what needs to happen are steep cuts. Greece's per capita GDP is $30,000. It's not a poor country. The Greeks aren't going to starve. Their tax burden is about 5 points below the OECD average. Their fall in GDP last year was a modest 2-3 percent compared to 10+ percent for Ireland.

No wonder Greek yields were lower than Irish for a long, long time.

The Irish, the Latvians, the Ukrainians, were all in worse situations. The latter are developing countries and their people are really suffering, but they combined IMF aid with massive internal devaluations and now Latvia is running a current account surplus, which is a huge, huge reversal from 2007.

Why can't the Greeks and Spaniards do the same thing? Too much union power. Too much pride rah rah, we're in the EU, we're invincible, Germany will bail us out, rah rah rah. Why should we suffer. Rah rah rah.

It's all a mirage. If the Irish can deal with austerity so can the Greeks. They won't be able to maintain their standard of living by defaulting and not being able to borrow. So they need to make the cuts necessary, which are even steeper than what has already been proposed. And even more important, Spain needs to make the same steps. Zapatero can either go down in history as the biggest disgrace to his party since 1936, or he can be a great Spanish Prime Minister with some backbone to stand up to the localities and entrenched interests.

[Landslide Lyndon]

I have a question:

Did the previous government lie so they could try and save their own skins, or did they do it to preserve some confidence in the economy?

The previous government was a bunch of inept and corrupt hacks with no other interest besides getting elected.

When they saw that their fraud was about to be exposed and the country's economy to collapse, they bailed out and left our current government deal with the mess and make all the tough choices.

[Јas]

compared to 10+ percent for Ireland.

7.1% (but, yes, 11.3% in terms of GNP)

[2952-0-0]

This whole drama sounds like the drama Argentina went through before the event in December 2001.

[Free Trade is managed by the invisible hand.]

lol is this the only time that government should be justified in lying?

[Sam Spade]

Don't know whether I can agree with that.  Dishonesty until the end didn't save Lehman, Bear, Fannie & Freddie, Countrywide or Washington Mutual, among others from doom.

So, I don't know whether it would have in this instance either.  In short, dishonesty can only last until there are no suckers left coming in or enough people start yelling fire.  Honesty may be painful for a while, but at least you have a chance long-term.

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

[Beet]

Don't know whether I can agree with that.  Dishonesty until the end didn't save Lehman, Bear, Fannie & Freddie, Countrywide or Washington Mutual, among others from doom.

So, I don't know whether it would have in this instance either.  In short, dishonesty can only last until there are no suckers left coming in or enough people start yelling fire.  Honesty may be painful for a while, but at least you have a chance long-term.

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

The problem is if Greece defaults, Portugal, Ireland, Italy and Spain will have difficulty borrowing, resulting in possible contagion. And if those countries start falling, so does C&E Europe, and then Belgium, Netherlands, etc. etc. like dominoes. That is why the other EU countries will likely bail out Greece in the end, even though I think internal devaluation is still the best path.

[Southern Senator North Carolina Yankee]

Don't know whether I can agree with that.  Dishonesty until the end didn't save Lehman, Bear, Fannie & Freddie, Countrywide or Washington Mutual, among others from doom.

So, I don't know whether it would have in this instance either.  In short, dishonesty can only last until there are no suckers left coming in or enough people start yelling fire.  Honesty may be painful for a while, but at least you have a chance long-term.

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

It also didn't save Enron, or the Penn Central. Eventually the last shoe drops, you can't sell that worthless paper to the market (even with the cooked numbers) and then you have to reveal to the Board of Directors and shareholders or in this case the people what they have been doing with their trust.

Its no different then what Enron did and it should never be tolerated.

[Sam Spade]

Don't know whether I can agree with that.  Dishonesty until the end didn't save Lehman, Bear, Fannie & Freddie, Countrywide or Washington Mutual, among others from doom.

So, I don't know whether it would have in this instance either.  In short, dishonesty can only last until there are no suckers left coming in or enough people start yelling fire.  Honesty may be painful for a while, but at least you have a chance long-term.

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

The problem is if Greece defaults, Portugal, Ireland, Italy and Spain will have difficulty borrowing, resulting in possible contagion. And if those countries start falling, so does C&E Europe, and then Belgium, Netherlands, etc. etc. like dominoes. That is why the other EU countries will likely bail out Greece in the end, even though I think internal devaluation is still the best path.

If the EU bails out Greece, Merkel is a dead woman walking (the Germans are that strongly against it) and eventually Spain and Italy will be right behind them knocking on the door (and Greece will be knocking again, of course, at some point).

For right now, though, we'll continue to get more Paulson-like jawboning.  Like what we're seeing today.

[Beet]

I agree - the German people have good reason to be against this. They have been subsidizing the likes of Greece apart from the current fiasco for years anyway. The Greek government should really have pushed through deeper cuts. They still should, as should the Iberians.

If Germany is anything like the US Fed & Treasury they'll bail everyone out, except for one.

[Landslide Lyndon]

I agree - the German people have good reason to be against this. They have been subsidizing the likes of Greece apart from the current fiasco for years anyway. The Greek government should really have pushed through deeper cuts. They still should, as should the Iberians.

If Germany is anything like the US Fed & Treasury they'll bail everyone out, except for one.

Well, if Germany wants to call the shots in the E.U. then one of its obligations is to "subsidize" the poorest countries.
Just like in the U.S. where Texas, New York and California subsidize through the federal government states like Alaska, North Dakota and Mississippi.

[Јas]

Well, if Handelsblatt is right, then the bail-out was presented to Merkel as a near fait accompli by Sarkozy, Berlusconi and Trichet.

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[Beet]

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

I think you are really right, this time, Sam. Greece will be forced to restructure its debt, perhaps in a disorderly way, perhaps leave the eurozone; and this will turn a number of other European countries into Greeces. I don't see any other alternative right now.

[Gustaf]

I agree - the German people have good reason to be against this. They have been subsidizing the likes of Greece apart from the current fiasco for years anyway. The Greek government should really have pushed through deeper cuts. They still should, as should the Iberians.

If Germany is anything like the US Fed & Treasury they'll bail everyone out, except for one.

Well, if Germany wants to call the shots in the E.U. then one of its obligations is to "subsidize" the poorest countries.
Just like in the U.S. where Texas, New York and California subsidize through the federal government states like Alaska, North Dakota and Mississippi.

What do you mean "wants to call the shots". They have to push up with so  much BS from the other euro countries I'm amazed they're not letting them rot.

I mean, Greece even played the Nazi card a like a couple of months ago. Poland does it all the time. Germany had to give up the D-mark and settle for reduced influence (compared to population) and they keep financing everyone else's bad economic policies.

If I were Germany I'd exit the whole thing and tell all those parasite countries to fend for themselves.

[Landslide Lyndon]

I agree - the German people have good reason to be against this. They have been subsidizing the likes of Greece apart from the current fiasco for years anyway. The Greek government should really have pushed through deeper cuts. They still should, as should the Iberians.

If Germany is anything like the US Fed & Treasury they'll bail everyone out, except for one.

Well, if Germany wants to call the shots in the E.U. then one of its obligations is to "subsidize" the poorest countries.
Just like in the U.S. where Texas, New York and California subsidize through the federal government states like Alaska, North Dakota and Mississippi.

What do you mean "wants to call the shots". They have to push up with so  much BS from the other euro countries I'm amazed they're not letting them rot.

I mean, Greece even played the Nazi card a like a couple of months ago. Poland does it all the time. Germany had to give up the D-mark and settle for reduced influence (compared to population) and they keep financing everyone else's bad economic policies.

If I were Germany I'd exit the whole thing and tell all those parasite countries to fend for themselves.

Germany and France are the only countries with REAL veto power in the EU. If Greece, Portugal or Poland disagrees with something, the Union will find a way to go around them. But if Germany or France does, then it's finished.

The Nazi card as you say was played by some populists in the media in response to a string of insulting comments by German commentators and politicians. Even so the criticism was founded on the fact that Germany owes us billions of Euros from WWII when they looted our treasury during occupation and used thousands of Greeks in forced labor camps. These are money that have been adjudicated to us by the courts and Germany refuses to pay, threatening with deterioration of our bilateral relationship if we continue to press the matter. So if they want us to lower our debt perhaps it would be a good idea to help us by paying their debts to us.

And most economists agree that Germany was the greatest beneficiary of the Euro. It was due the common currency that they managed to dominate the European markets and have built such a lopsided export/import imbalance as to threat the european economic stability.
And if we weren't locked in the Euro, we could have dealt with the crisis much easier by devaluing our currency, much like Canada did in the 80's. It's the euro that strangles our competitiveness and most of the other Mediterranean countries.

[Beet]

And if we weren't locked in the Euro, we could have dealt with the crisis much easier by devaluing our currency, much like Canada did in the 80's. It's the euro that strangles our competitiveness and most of the other Mediterranean countries.

Greece is of course free to 'exit' the euro. Perhaps that would be best in the long run, even though in the medium term it would lead to contagion and send the eurozone back into recession.

[Landslide Lyndon]

And if we weren't locked in the Euro, we could have dealt with the crisis much easier by devaluing our currency, much like Canada did in the 80's. It's the euro that strangles our competitiveness and most of the other Mediterranean countries.

Greece is of course free to 'exit' the euro.

That's easier said than done.

[Beet]

And if we weren't locked in the Euro, we could have dealt with the crisis much easier by devaluing our currency, much like Canada did in the 80's. It's the euro that strangles our competitiveness and most of the other Mediterranean countries.

Greece is of course free to 'exit' the euro.

That's easier said than done.

Well of course. But it's either that or massive wage cuts.

[Sam Spade]

Anyway, I'm sure you agree that the short term yield movements the last couple of days suggest that Greece blows up in a few months or so, maybe less.

I still maintain that the end result for Greece is default, with the other EU countries bailing out their banks involve.

I think you are really right, this time, Sam. Greece will be forced to restructure its debt, perhaps in a disorderly way, perhaps leave the eurozone; and this will turn a number of other European countries into Greeces. I don't see any other alternative right now.

Getting there, slowly but surely.

With yields this high and the massive inversion in the curve (13% for 2 yr, 9.5% for 10yr as of today), they'll probably have trouble rolling over next time they're due (not just selling new ones) without help.

[Gustaf]

I agree - the German people have good reason to be against this. They have been subsidizing the likes of Greece apart from the current fiasco for years anyway. The Greek government should really have pushed through deeper cuts. They still should, as should the Iberians.

If Germany is anything like the US Fed & Treasury they'll bail everyone out, except for one.

Well, if Germany wants to call the shots in the E.U. then one of its obligations is to "subsidize" the poorest countries.
Just like in the U.S. where Texas, New York and California subsidize through the federal government states like Alaska, North Dakota and Mississippi.

What do you mean "wants to call the shots". They have to push up with so  much BS from the other euro countries I'm amazed they're not letting them rot.

I mean, Greece even played the Nazi card a like a couple of months ago. Poland does it all the time. Germany had to give up the D-mark and settle for reduced influence (compared to population) and they keep financing everyone else's bad economic policies.

If I were Germany I'd exit the whole thing and tell all those parasite countries to fend for themselves.

Germany and France are the only countries with REAL veto power in the EU. If Greece, Portugal or Poland disagrees with something, the Union will find a way to go around them. But if Germany or France does, then it's finished.

The Nazi card as you say was played by some populists in the media in response to a string of insulting comments by German commentators and politicians. Even so the criticism was founded on the fact that Germany owes us billions of Euros from WWII when they looted our treasury during occupation and used thousands of Greeks in forced labor camps. These are money that have been adjudicated to us by the courts and Germany refuses to pay, threatening with deterioration of our bilateral relationship if we continue to press the matter. So if they want us to lower our debt perhaps it would be a good idea to help us by paying their debts to us.

And most economists agree that Germany was the greatest beneficiary of the Euro. It was due the common currency that they managed to dominate the European markets and have built such a lopsided export/import imbalance as to threat the european economic stability.
And if we weren't locked in the Euro, we could have dealt with the crisis much easier by devaluing our currency, much like Canada did in the 80's. It's the euro that strangles our competitiveness and most of the other Mediterranean countries.

No one benefitted from the euro, imo. Germany certainly is not benefitting now when they have to pay for everyone else.

Granted, it is worse for weaker economies, but Greece and all those other countries semi-forced their way into the euro despite being too weak because they thought they could leech off of Germany's stronger economy. That didn't work of course.

But, seriously, the war crimes committed are really irrelevant and is a good example of why the EU is bad for European integration. It isn't as if Germany is getting repaid for the horrible atrocities committed by the Red Army towards the end of WWII. They've paid their debt and the Germany of today shouldn't have to bear the guilt of that war anymore.

It certainly has nothing to do with Greece's current economic woes.

[Landslide Lyndon]

No one benefitted from the euro, imo. Germany certainly is not benefitting now when they have to pay for everyone else.

Granted, it is worse for weaker economies, but Greece and all those other countries semi-forced their way into the euro despite being too weak because they thought they could leech off of Germany's stronger economy. That didn't work of course.

But, seriously, the war crimes committed are really irrelevant and is a good example of why the EU is bad for European integration. It isn't as if Germany is getting repaid for the horrible atrocities committed by the Red Army towards the end of WWII. They've paid their debt and the Germany of today shouldn't have to bear the guilt of that war anymore.

It certainly has nothing to do with Greece's current economic woes.

Germany has not benefited from the Euro? Is that supposed to be funny?
Even Christine Lagarde chastised the Germans about a month ago, saying that they used the common currency to dominate over european markets (like Greece and Portugal) and now they refuse to help the members of the Eurozone who are in crisis.

We are not talking about war crimes here. We are talking about forcible loans to the German state by the Bank of Greece and wages for the Greeks who provided forced labor. The money were adjudicated to our government by the european courts less than a decade ago. Germany acknowledges the debt but simply refuses to pay. 

Of course it won't solve our fiscal woes. But you can't demand from someone to balance his budget while at the same time you aren't fulfilling your obligations to that person.

[Gustaf]

No one benefitted from the euro, imo. Germany certainly is not benefitting now when they have to pay for everyone else.

Granted, it is worse for weaker economies, but Greece and all those other countries semi-forced their way into the euro despite being too weak because they thought they could leech off of Germany's stronger economy. That didn't work of course.

But, seriously, the war crimes committed are really irrelevant and is a good example of why the EU is bad for European integration. It isn't as if Germany is getting repaid for the horrible atrocities committed by the Red Army towards the end of WWII. They've paid their debt and the Germany of today shouldn't have to bear the guilt of that war anymore.

It certainly has nothing to do with Greece's current economic woes.

Germany has not benefited from the Euro? Is that supposed to be funny?
Even Christine Lagarde chastised the Germans about a month ago, saying that they used the common currency to dominate over european markets (like Greece and Portugal) and now they refuse to help the members of the Eurozone who are in crisis.

We are not talking about war crimes here. We are talking about forcible loans to the German state by the Bank of Greece and wages for the Greeks who provided forced labor. The money were adjudicated to our government by the european courts less than a decade ago. Germany acknowledges the debt but simply refuses to pay. 

Of course it won't solve our fiscal woes. But you can't demand from someone to balance his budget while at the same time you aren't fulfilling your obligations to that person.

1. Germany entered the euro with a too strong real exchange rate. Unless most other euro countries they took the responsible course of holding back wage increases thus increasing their competitiveness.

2. Who is Christine Lagarde and why should I care about her opinion?

3. How did they use the common currency to dominate markets? What does that mean?

4. It is odd to hold the Germans of today responsible for what the Nazis did 60 years ago. The Germans have suffered a lot from WWII and its aftermath and it is time to let it go. It is irrelevant and doesn't help anything.

5. I still don't see why Germany should pay for other countries who have mismanaged their economies. Over the last half-century Germany is, more or less, the only country in Western Europe to consistently look after their economy in a competent fashion. That shouldn't be rewarded by ridding them with the debts of other countries.

[Landslide Lyndon]

1. Germany entered the euro with a too strong real exchange rate. Unless most other euro countries they took the responsible course of holding back wage increases thus increasing their competitiveness.

2. Who is Christine Lagarde and why should I care about her opinion?

3. How did they use the common currency to dominate markets? What does that mean?

4. It is odd to hold the Germans of today responsible for what the Nazis did 60 years ago. The Germans have suffered a lot from WWII and its aftermath and it is time to let it go. It is irrelevant and doesn't help anything.

5. I still don't see why Germany should pay for other countries who have mismanaged their economies. Over the last half-century Germany is, more or less, the only country in Western Europe to consistently look after their economy in a competent fashion. That shouldn't be rewarded by ridding them with the debts of other countries.

I don't have time now but I'll respond to one of your questions.

Christine Lagarde is the French Minister of Finance. So I guess that even you will concede that her opinion is somewhat important in EU.