The Latest Greek Bailout, what you ought to know

[MikeDC]

Tyler Cowen writes:

I view the entire bailout announcement, and its scope, as a signaling issue. The Germans loathe such semi-inflationary commitments and basically they just signaled that their banks are a good deal more precarious than the rest of us would like to believe.

So there you have it. Europe is stuck and in response to a crisis they basically raised the stakes. Arguably they had no choice, but they haven't actually eliminated the potential negative outcomes from the gamble.

Essentially, as far as I can tell, the Eurozone just created TARP for whole countries.

Meanwhile, the Greeks themselves seem fairly unwilling to stop borrowing so much money

A nationwide general strike paralyzed Greece on Wednesday as protests against the government's recently announced austerity measures turned violent, with an apparent firebomb attack on a central Athens bank killing three people.

Wednesday's 24-hour strike is seen as a key test of the government's ability to shepherd through tough austerity measures in exchange for a €110 billion ($143 billion) bailout loan from the European Union and the International Monetary Fund.

The strike coincided with protests that brought out tens of thousands of Greeks, one of the country's largest protests in years. Angry youths rampaged through the center of Athens, torching several businesses and smashing shop windows.

This seems, basically, like a homeowner who can't possibly hope to repay his mortgage shooting up a bank because it won't give him a second mortgage

 

[SlyPokerDog]

This is the shit that happens when we elect a Muslim president.

It's not a coincidence that Obama and Ouzo both start with the letter O.

 

[ABM]

Dang, Athens is destined to end up in ruins.

 

[MikeDC]

I'm most perplexed by young people rioting at the prospect of not being saddled with even more old peoples' debt.

 

[jlprk]

Huh? They are rioting against the "government's ability to shepherd through tough austerity measures in exchange for a €110 billion ($143 billion) bailout loan from the European Union and the International Monetary Fund." Says your quote.

 

[Eastoff]

I'm most perplexed by young people rioting at the prospect of not being saddled with even more old peoples' debt.

I think they are rioting because their country is f'ed up and they are youth with no real jobs.

 

[MikeDC]

Huh? They are rioting against the "government's ability to shepherd through tough austerity measures in exchange for a €110 billion ($143 billion) bailout loan from the European Union and the International Monetary Fund." Says your quote.

Well, what's going on is basically the government is paying out huge amounts to older folks by borrowing that money. The older folks, of course, won't be saddled with the debt, and are the overwhelming beneficiaries of the government payments.

Hence, the austerity measures they young'uns are protesting against will actually help them more. In essence it's something like this

Society is composed of Group A and Group B. Every year, A+B make $100, and every year they've borrowed money, spending $150/yr.

This year, lenders are looking at this society and deciding they don't want to loan any more money. A+B are both pissed off at lenders. However, when you really look at that $50 a year A+B were getting, A got about $10 and B got about $40.

So going forward, what's happening is an "austerity measure" is being proposed under which lenders still lend some amount, say $25/year for a while, if A+B agree to spend only $125 a year. Not they're still actually only making $100, so on net they're still borrowing, just borrowing less.

Under the austerity plan, A gets $5 of the loan and B gets 20. They don't want to cut at all.

When it comes to eventually paying back that money, B is going to up and leave. meaning that A might make $100/yr by themselves, but they won't be able to spend $100 any more. At some point, they'll have to cut back further and only spend $75/yr and give the other $25/yr or so to the guys who've lent them money forever.

Or, more likely, they all try to stiff the guys who lent them the money.

 

[BrianFromWA]

I'll lend Greece money, with the Parthenon as the collateral. I've got some plans for that baby.

 

[Ed O]

I'm most perplexed by young people rioting at the prospect of not being saddled with even more old peoples' debt.

It's the lure of free money. So many of us have received so much for free for so long (and I don't consider myself above this) that it's hard to understand that we can't fail to give things up without serious consequences sometimes.

Ed O.

 

[mook]

It's the lure of free money. So many of us have received so much for free for so long (and I don't consider myself above this) that it's hard to understand that we can't fail to give things up without serious consequences sometimes.

Ed O.

Well said. Pretty good opinion piece about the subject here by Thomas Friedman:
http://www.nytimes.com/2010/05/09/opinion/09friedman.html?src=me&ref=general

The meta-story behind the British election, the Greek meltdown and our own Tea Party is this: Our parents were “The Greatest Generation,” and they earned that title by making enormous sacrifices and investments to build us a world of abundance. My generation, “The Baby Boomers,” turned out to be what the writer Kurt Andersen called “The Grasshopper Generation.” We’ve eaten through all that abundance like hungry locusts.
Now we and our kids together need to become “The Regeneration” — one that raises incomes anew but in a way that is financially and ecologically sustainable. It will take a big adjustment.
We baby boomers in America and Western Europe were raised to believe there really was a Tooth Fairy, whose magic would allow conservatives to cut taxes without cutting services and liberals to expand services without raising taxes. The Tooth Fairy did it by printing money, by bogus accounting and by deluding us into thinking that by borrowing from China or Germany, or against our rising home values, or by creating exotic financial instruments to trade with each other, we were actually creating wealth.
Greece, for instance, became the General Motors of countries. Like G.M.’s management, Greek politicians used the easy money and subsidies that came with European Union membership not to make themselves more competitive in a flat world, but more corrupt, less willing to collect taxes and uncompetitive. Under Greek law, anyone in certain “hazardous” jobs could retire with full pension at 50 for women and 55 for men — including hairdressers who use a lot of chemical dyes and shampoos. In Britain, everyone over 60 gets an annual allowance to pay heating bills and can ride any local bus for free. That’s really sweet — if you can afford it. But Britain, where 25 percent of the government’s budget is now borrowed, can’t anymore.
Britain and Greece are today’s poster children for the wrenching new post-Tooth Fairy politics, where baby boomers will have to accept deep cuts to their benefits and pensions today so their kids can have jobs and not be saddled with debts tomorrow. Otherwise, we’re headed for intergenerational conflict throughout the West.

 

[blazerboy30]

^^^ Nice find. Well put.

It is a scary thing that people don't realize (or want to admit) that cuts / sacrifices will need to be made or else this ship is going down.

 

[MikeDC]

I once remarked to my dad, and he didn't really disagree, that my generation was perhaps the first generation in memory to be more responsible than our parents.