Will Greek Vote Imperil World Economy?

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WEALTH OF NATIONS

Don’t Believe the Hype About Greece

The Eurozone isn’t on the verge of collapse, yet.

By ZACHARY KARABELL

 

July 05, 2015

If Eurozone unravels over the coming weeks, it will be because of stupidity and panic, not because of Greece. There is absolutely no reason for the entire Eurozone to collapse due to Greece, and no reason to assume that it will or even come close.

A considerable majority of Greeks voted on Sunday to reject the onerous bailout conditions demanded by European creditors. More than 60 percent of those who went to the polls followed the call of Prime Minister Alexis Tspiras to stand up against years of punishing austerity. There were celebrations in the streets of Athens and promises by the Greek government that the result would strengthen the Greek position and force concessions from the Germans, the European Central Bank and the rest of the Eurozone.

If only.

If only the referendum marked the end of six agonizing years where Greece has been the symbol for the Eurozone and its future. If only the vote resolved the question of whether Greece is the proverbial first domino or instead a wounded limb that can be removed without killing the main body. If only the action of financial markets on Monday and throughout the upcoming week provided a clear signal about whether the other struggling members of the Eurozone, especially Italy and Spain, have recovered enough from the worst of the financial crisis to withstand the efforts of bond market speculators to send their sovereign yields soaring again to dangerous levels.

The immediate reactions on Sunday were, to put it blandly, mixed. Some members of the European Parliament and the German government said that there was no other path now than a “Grexit” from the euro. The German economy minister and head of the Social Democrats remarked, “Tsipras and his government are leading the Greek people on a path of bitter abandonment and hopelessness,” and concluded that there was little way for Greece to remain in the euro. On the flip side, the normally hawkish and hardline German Finance Minister Wolfgang Schaeublesaid that the member states of the Eurozone would not “leave Greece in the lurch,” though it isn’t clear what that actually means. German Chancellor Angela Merkel and French president Francois Hollande announced they would meet on Monday to discuss how best to respond.

Financial markets will have the first say, however, and that say is likely to be a resounding “OMG” combined with considerable volatility. Some of that will come from traders who have had a blah year looking to make very fast money. Some will come from fund managers who have been betting against the euro and skeptical of the debt of countries such as Spain and Greece. And some will simply be skittish investors whose nerves remain frazzled even six years after the financial crisis and primed to see any tremors not as normal features of the world we live in but as preludes to the Big One that will leave portfolios in tatters, companies in confusion and sovereign government finances in shambles.

Voices warning of the Big One will likely be the same voices that always warn of the Big One. In an infinitesimally small number of situations, those voices are right; the rest of the time they are very wrong. Heeding them is almost always a recipe for making spectacularly wrong decisions, except for once in a generation. This might be that one time, but I doubt it.

Does the situation in Greece really imperil the $17 trillion U.S. economy? Does it impact how 3 billion people in India and China will shape the next five or ten years, as hundreds of millions continue to lurch into the middle class? Does it impact how hundreds of millions of Africans stretching from Nigeria to Kenya manage their own economic moves into the future? No, no and no.

Zachary Karabell is head of global strategy at Envestnet and author of The Leading Indicators: A Short History of the Numbers That Rule Our World. He is a contributing editor at  Politico Magazine.

Read more: http://www.politico.com/magazine/story/2015/07/greece-eurozone-collapse-119752.html#ixzz3f57wKk7A

Greece Debt. Buddy Can You Spare A Dime?

If Greek Debt Is Bad, How Does One Describe US Debt--World Wide Catastrophe?

Greeks Panic By Taking Deposits From Greek Central Bank

Here is the first signal that Greece is going to collapse, pull (or be forced) out of the Eurozone. Greeks no longer believe in their system. It is not going to be pretty and it WILL effect the 2012 elections as Obama, Bernacke and Geithner will be forced by world powers to back up the Euro. 

Will the "emergency" in Greece for Obama to declare martial law? We don't think so, unless there is a move to restrict what Americans can take out of our banks. A panic would set up the government intervention.

Conservative Tom

GREEK BANK RUNS SIGNAL NEW LEVEL OF PANIC

News

USA Today

by: Nikolia Apostolou and Renuka Rayasam

Thursday, May 17, 2012

Greece's financial crisis threatens to bring down the euro and return Greece to the drachma, the country's previous currency that would likely be worth far less than euros.Photo Credit:AP

Greeks withdrew more than $900 million Monday and another $600 million Tuesday, according to the Greek Central Bank. While deposits have been steadily leaving banks since the start of the country's debt problems in 2009, this week's outpouring of cash reflects a new level of panic, analysts say. ...

Some Greek fears the fight against austerity could force Greece out of the 17-member eurozone of nations that use the euro as currency and require the country to return to the drachma, the previous Greek currency that would likely be worth far less than euros.

"It's a game of chicken between the EU and Greece," says Raoul Ruparel, head of economic research at Open Europe, a London-based think tank.

Read more:http://times247.com/articles/greek-bank-runs-signal-new-level-of-panic#ixzz1vFTmQduN

Greek Bailout-- Is A Greek Tragedy Next

We continue to read the issues with Greece and its bailout with concern and trepidation.  Our concern is, will it transpire as planned and are there contingencies in place should it not go the way they want. Additionally, we hope it will not cause other countries (Italy, Portugal, Spain for example) to follow suit due to deteriorating financial conditions. There also should be some reservation on the banks and how they will react to the near default and the provisions put in place. For example, will they ever lend to Greece again and if they don't, how does the country build itself back?


Our trepidation is one we have expressed earlier.  Will Germany have to take over the Greek economic system and therefore actually conquer the country without firing a shot? If Portugal, Spain and Italy follow suit, will Germany also take over those countries?  


We have not been a party to the negotiations and we doubt even those closest to the agreement could answer our rather basic questions, as this will have to work itself out.  As far as we know, there never has been a country that was saved from default. We are in virgin territory.  Will the Greeks live up to their agreements, if not, what occurs? Do they go on their own and if so, who lends them money. Surely, no international bank would. Do they go back to barter.  If their economy would be run by another country, how would their citizens react?  


The Greeks are going to have a lot of luck to get through this and come out the other side without major damage.  We definitely wish them luck. Hopefully, the creditor nations will learn from this experience and make better decisions for the next country that comes down the bankruptcy pike.


Conservative Tom

Greece's bailout is back in private sector hands

By Ben Rooney | CNNMoney.com – 9 minutes ago

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It looks like Greece will avoid an outright default in the short run now that eurozone finance officials have signed off on a second bailout for the debt-stricken nation.

But the rescue package worth €130 billion is contingent on a historic debt reduction agreement with private sector investors that must be approved before any bailout money can be released.

Assuming private sector investors sign off, Greece should be able to secure the funds it needs to make a €14.5 billion bond payment in March.

The terms of the private sector agreement include a write down of 53% on the face value of Greek government bonds, steeper than the previous 50% reduction agreed to in October.

The proposal will now be presented to members of the Institute of International Finance, which represents the private sector. The IIF's full committee will review the details and make a decision "in accordance with their own individual processes," according to a statement.

IIF director Charles Dallara said in an interview with CNN's Richard Quest that he expects a high participation rate, but he acknowledged that each investor has the right to make their own decision.

Eurozone approves new $173B bailout for Greece

Under the terms of the agreement, Greece's debt load will be cut by about €107 billion, equal to 50% of the nation's estimated economic output for the year. It will also reduce the amount of debt Greece needs to refinance over the coming years by roughly €150 billion, according to the IIF.

In addition to the write down, investors would exchange existing bonds for securities with lower interest rates. At the same time, investors would receive securities that could increase in value as the Greek economy improves, and EU officials would kick in a €30 billion "sweetener."

According to the IIF, the agreement represents the largest sovereign debt restructuring in history.

Overall, the deal will result in losses of 74% for the private sector, according to Marc Chandler, head of global currency strategy at Brown Brothers Harriman.

Euro economy shrinks, is recession next?

Given the onerous terms, he said reaching the targeted 95% participation rate "seems unlikely." He also suggested that an official endorsement by the IIF may not mean that all private sector investors are on board.

"It is not clear how much the IIF really represents the private sector," said Chandler, in a note to clients.

The concern is that a large number of investors will balk at the deal, forcing the terms to be renegotiated. That could delay the just-approved bailout and put Greece back at risk of a disorderly default.

The Greek government is expected to pass legislation this week that would force investors who reject the agreement to take losses on Greek bonds issued under domestic law, which make up the majority of the nation's debt load.

The presence of so-called collective action clauses would not qualify as a "credit event," according to the International Swaps and Derivatives Association. But the association suggested that activating the clauses could trigger credit default swaps, a form of insurance that investors use to protect against a default.

Credit default swaps, or CDS, were a major contributor to the 2008 financial crisis, when declines in the U.S. housing market caused banks to suffer major losses on mortgage-backed securities.

But analysts say the Greek CDS market is small and such a credit event would probably not shock the global financial system.

"The net Greek CDS positions of systemically-relevant financial institutions appear to be relatively limited," said Tobias Blattner, euro area economist at Daiwa Capital Markets.

A Real View Of Greek Debt

A Warning Sign For The World

February 15, 2012 11:18 amauthor: The Economic Collapse Blog

Any financial system that is based on debt is doomed to fail. Today, we are living in the greatest debt bubble that the world has ever seen, and if all of a sudden people could not use credit to buy things our economy would immediately ground to a halt. Unfortunately, no debt bubble can last forever. When this current debt bubble finally bursts, faith in the financial system is going to disappear, credit is going to freeze up and there is going to be a massive wave of bank failures. Right now, Greece is a warning sign for the world. Nobody wants to lend money to Greece, the Greek banking system is dying, one out of every four businesses has already shut down, unemployment is soaring and the Greek economy has now been in recession for five years in a row. Sadly, the economic implosion in Greece is rapidly accelerating. The Greek economy shrunk at a 7 percent annual rate during the 4th quarter of 2011. That wasn’t supposed to happen. Things were supposed to be getting better in Greece by now. But instead the Greek depression is getting even worse, and very soon the rest of the world is going to be going through what Greece is currently experiencing.

Unfortunately, most in the mainstream media are treating what is happening in Greece as an “isolated incident” rather than as a very serious warning sign for the world.
Thankfully, there are at least a few reporters out there that are realizing the gravity of the situation. The following is how one reporter from the New York Times recently described what life is like in Greece now….

By many indicators, Greece is devolving into something unprecedented in modern Western experience. A quarter of all Greek companies have gone out of business since 2009, and half of all small businesses in the country say they are unable to meet payroll. The suicide rate increased by 40 percent in the first half of 2011. A barter economy has sprung up, as people try to work around a broken financial system. Nearly half the population under 25 is unemployed. Last September, organizers of a government-sponsored seminar on emigrating to Australia, an event that drew 42 people a year earlier, were overwhelmed when 12,000 people signed up. Greek bankers told me that people had taken about one-third of their money out of their accounts; many, it seems, were keeping what savings they had under their beds or buried in their backyards. One banker, part of whose job these days is persuading people to keep their money in the bank, said to me, “Who would trust a Greek bank?”

Can you imagine?
Greece is experiencing a full-blown economic collapse and nobody can see a light at the end of the tunnel at this point.
As I have written about previously, the overall rate of unemployment in Greece has now risen above 20 percent and the youth unemployment rate in Greece has soared to an astounding 48 percent.
Deleveraging can be an extremely painful process. Greece has been forced to try to reduce the size of its budget deficit, but every time it cuts government spending that causes economic activity (and thus government revenues) to slow down as well.
Now the EU and the IMF are demanding that even more very painful austerity measures be implemented in Greece even though Greece is already experiencing a full-blown depression.
The EU and the IMF are demanding that Greece fire 15,000 more government workers immediately and a total of 150,000 government workers by 2015.
The EU and the IMF are demanding that wages for government workers be cut by another 20 percent.
The EU and the IMF are demanding that the minimum wage be slashed by more than 20 percent.
The EU and the IMF are also demanding significant reductions in unemployment benefits and pension benefits.
Of course all of those cuts are going to make the short-term economic conditions in Greece even worse.
The rioting, looting and burning of buildings that we are witnessing right now in Greece is likely to continue for quite some time as exasperated citizens attempt to express their frustrations to politicians that simply do not seem to care.
According to the National Confederation of Greek Commerce, recent rioting resulted in damage to 153 businesses in Athens. 45 of those businesses were totally destroyed.
You can view some stunning footage of the current rioting in Greece right here.
Despite all of the austerity measures that have already been implemented, the truth is that Greece is very likely to default soon anyway.
There is a very good chance that the new austerity agreement that the Greek parliament just approved will never be implemented. There are new elections scheduled for April and the current party in power is polling in the single digits.
The new Greek government is likely to look much different from the current one, and nobody knows for sure if the new government will follow through on any of the promises being made by the current government.
In addition, the German parliament must approve this new deal with Greece, and the German parliament is not scheduled to vote on it until February 27th. Considering the mood in Germany right now, approval is not guaranteed.
So there are all kinds of things that could go wrong with the “deals” that are currently being discussed. The truth is that a Greek default in the coming months seems to become more likely by the day.
Some in the financial world almost seem eager for a Greek default. The following is what Jon Moulton, the chairman of Better Capital, recently told CNBC….

“If I was Greek, I wouldn’t be going for these measures, I’d be going for default and getting it over with. Would you like two to three years of pain or 20?”

But a disorderly Greek default would not be a pleasant thing for the global economy at all. A recent article in the Guardian detailed what some of the consequences of a Greek default and exit from the eurozone might be….

But default and “re-drachmatisation” would be a costly and chaotic process. In the long term the euro might be strengthened if some of its weaker members headed for the door. But in the short term banks across the eurozone might have to be closed to prevent a run on the single currency as investors speculated about which country might be next. A new wave of bank nationalisations would be likely to follow as lenders counted their losses on now worthless Greek debt.
Capital controls would have to be imposed and borders shut to stop money flooding out of Greece. Portugal, Italy and Spain would come under intense pressure from investors wary about the risk of another victim. Banks everywhere, already reluctant to lend, would cut back hard, nervous about their exposure to the bonds of all Europe’s crisis-hit states.

And the financial crisis in Europe is going to continue to spread well beyond Greece. Moody’s Investors Service just downgraded the credit ratings of six European nations. The following is how Bloomberg described the downgrades….

Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. It also reduced the ratings of Slovakia, Slovenia and Malta.

Countries such as Italy, Spain, Portugal, Ireland and Hungary are heading down the exact same road that Greece has gone. Greece was the first one to experience a full-blown depression, but soon Greece will have a lot of company.
Greece is most definitely a warning sign for the world. If you keep recklessly piling up debt, eventually a day of reckoning comes. It is inevitable.
But Barack Obama does not seem to understand this. He continues to pile another 150 million dollars on to our national debt every single hour. He knows that cutting spending significantly right now would hurt the economy and that would significantly hurt his chances for another term.
Needless to say, Barack Obama is not likely to do anything that is going to significantly hurt his chances for another four years in the White House.
So we continue to roll on toward disaster.
The U.S. financial system is like a car with no brakes that is heading straight toward a 5,000 foot drop at 100 miles an hour.
It is all going to seem like fun and games to some people until we hit the canyon floor.
Once that happens, nobody will be laughing.