The Real Reason Why The Ecb Is Getting Tough On Greece

[1929crash]

Greece has existed in its present form only since 1975. Before that it was a military dictatorship for ten years (the colonels regime, supported by the US in fine shock doctrine fashion), and before that, well, lets just say it was a country that gave birth to a dictatorship. Once democracy was restored in its very cradle, Greece was ushered into European organizations very quickly, to a large extent because of geographic and strategic considerations. Across the Aegean lies Turkey, and beyond Turkey the Arab world. Easy as -shepherd's- pie.

Greece became a full patch EU member in 1981, only 6 years after the colonels had left. But of course the entire structure beneath the top remained intact, with a small long standing elite that has its fingers in every ouzo glass in the nation, and corruption on all levels of society that could be rivaled -maybe- only by a few African nations.

Some have suggested that todays financial troubles in Athens tell them that Greece must have cooked its books in 1981 to get into the EU as well. And sure, the Greeks good cooks: In early 2009, Greece claimed a deficit of 3.7% of GDP, and when winter came around, it turned out to be 12.7%. Only, in 1981, the EU helped them in the financial kitchen, because everyone, EU, US, was so eager not to let Russia get its hands on the country, and voters were swinging heavily from left to right.

The biggest problems for Greek politics today are soaring unemployment and the riots that are closely connected to it. In that sense, in a first Trojan twist, it's a godsend for the government, whichever one it may be on any given day, to have the EU and some of its member states holler heavy rhetoric in the media about Hellas. Because now that government can point at Brussels, Paris and Berlin, and claim that's where the guilty parties are. Demands by the union of 10% across the board budget cuts, they may look nice on paper, but it'll be a whole different picture if and when shop windows are broken and barricades built.

However, people like European Central Bank President Jean-Claude Trichet and German Chancellor Angela Merkel have a greater goal in mind, a second Trojan thoroughbred. Although they publicly claim anger, denounce "irresponsible behavior" and demand budget cuts, they also know you should never let a good crisis go to waste, and have started to use the Greek situation in an attempt to achieve what they see as their number one emergency: bring down the value of the Euro.

The single EU currency's -too- high rate vs the US dollar hurts Europe like a fully equipped torture chamber, and they know it has to stop. Leaving open the option to the outside world that Greece may fail and/or leave the EU, will be, they hope, enough to terrify markets away from the Euro and into greenbacks.

A fascinating analysis at:

http://theautomaticearth.blogspot.com/2010/01/january-15-2010-of-trojan-thoroughbreds.html

Edited January 17, 2010 by 1929crash

[DONKEY2409]

The single EU currency's -too- high rate vs the US dollar hurts Europe like a fully equipped torture chamber, and they know it has to stop. Leaving open the option to the outside world that Greece may fail and/or leave the EU, will be, they hope, enough to terrify markets away from the Euro and into greenbacks.

I think thats very flawed logic: I would think that a Euro without Greece (and even more, without Club Med entirely) would be percieved as a stronger currency rather than weaker.

[1929crash]

The single EU currency's -too- high rate vs the US dollar hurts Europe like a fully equipped torture chamber, and they know it has to stop. Leaving open the option to the outside world that Greece may fail and/or leave the EU, will be, they hope, enough to terrify markets away from the Euro and into greenbacks.

I think thats very flawed logic: I would think that a Euro without Greece (and even more, without Club Med entirely) would be percieved as a stronger currency rather than weaker.

Possibly, but a failed Greece still within the Eurozone?

[DONKEY2409]

Possibly, but a failed Greece still within the Eurozone?

Ahh...yeh, ok...now I see the point, that obviously creates a deal of insecurity: if you threw in Spain, Portugal and Italy

as well that would undermine the Euro very nicely, thank you!

[Democorruptcy]

Article here about defaulting and staying in the Eurozone

Three issues are being linked in this passage. The emergence of high levels of sovereign default risk premium differentials between different eurozone member states, the external value of the euro and the likelihood of the eurozone breaking up. There is no self-evident link between these three issues. The first is neither necessary nor sufficient for the second or the third. More than that, the threat or reality of sovereign default by a eurozone member state is much more likely to reduce that country’s incentive to leave the eurozone than to increase it.

....

Would a eurozone national government faced either with the looming threat of default or with the reality of a default be incentivised to leave the eurozone? Consider the example of a hypothetical country called Hellas. It could not redenominate its existing stock of euro-denominated obligations in its new currency, let’s call it the New Drachma. That itself would constitute a further act of default. If the New Drachma depreciated sharply against the euro, in both nominal and real terms, following the exit of Hellas from the eurozone, the real value of the government debt-to-GDP ratio would rise. In addition, any new funding through the issuance of New Drachma-denominated sovereign bonds would be subject to an exchange rate risk premium, and these bonds would have to be sold in markets that are less deep and liquid that the market for euro-denominated Hellas debt used to be. So the sovereign eurozone quitter and all who sail in her would be clobbered as regards borrowing costs both on the outstanding stock and on the new flows.

A sharp depreciation of the nominal exchange rate of the New Drachma vis-a-vis the euro would for a short period improve the competitive position of the nation because, with domestic costs and prices sticky in nominal New Drachma terms, a nominal depreciation is also a real depreciation. Nominal rigidities are, however, less important for eurozone economies than for the UK, and much less important than in the US. Real rigidities are what characterises mythical Hellas, as it does real-world Greece, Italy, Spain, Portugal and Ireland. The real benefits from a nominal exchange rate depreciation would be eroded after a year - within two years at most - before you could say cyclical recovery. The New Drachma would be a little currency in a big global financial market system - not an instrument to be used to gain competitive advantage or to respond efficiently to asymmetric shocks, but a source of extraneous noise, excess volatility and persistent misalignments, rather like sterling.

A eurozone member state faced with the prospect of sovereign default, or just having suffered the indignity of sovereign default, would be immensely relieved to be a member of the eurozone. The last thing it would want to do is give up the financial shelter provided by membership in the eurozone to try and emulate Iceland, New Zealand or the UK.

....

So we may well see sovereign defaults by EU national governments, both inside and outside the eurozone. But it is more likely in my view that Scotland will leave the sterling monetary union (and the United Kingdom) and adopt the euro as its currency than that an existing eurozone member will leave the eurozone. We shall see.

http://blogs.ft.com/maverecon/2009/01/sovereign-default-in-the-eurozone-and-the-breakup-of-the-eurozone-sloppy-thinking-101/

[Once in a lifetime]

In 2009, Eurostat says, Greece submitted incorrect data and did not respect accounting rules.

The European Commission relies on EU member states’ accurate reporting of economic data,

because it does not have the power to audit their accounts,

but Greek fiscal data has come under intense scrutiny with the quality

of the data lagging other member states.

A lack of independence and transparency is the root cause of the inaccurate data.

Greece failed to make its statistical institute - the NSSG - and its General Accounting Office

independent from the finance ministry. Such weaknesses allowed the quality of the data to be

“subject to political pressures and electoral cycles”, according to Eurostat.

http://news.bbc.co.uk/1/hi/world/europe/8456216.stm

[interestrateripoff]

The ECB is run for German needs, no one else matters.

[non frog]

...But it is more likely in my view that Scotland will leave the sterling monetary union (and the United Kingdom) and adopt the euro as its currency than that an existing eurozone member will leave the eurozone. We shall see.

Ahhh... Willem... Been on the happy juice again?

Much as I like the FT as a newspaper this makes me laugh. Scotland will devolve its pound sterling from the rest of the UK and establish a Scottish pound/Pound sterling exchange rate. Anglo-Welsh-Irish pounds will no longer be legal tender in Scotland. Scotland will change its coinage to ensure Anglo-Welsh-Irish coins cannot be used fraudulently. The Scottish parliament and the Bank of Scotland will fix the exchange rate for Scottish pounds (know know as Poooonds-wee-Jimmy) to the Euro in order to comply with Euro membership.

The Scots will build a border between it and the English to prevent the massive growing black market in agricultural diesel and the movement of goods to double claim EU subsidy. The company that build the wall (Hadrian PLC) demand a public-private-partnership based on collecting a toll of £1.25 for English people going into Scotland and two Poooonds-wee-Jimmy for journeys in the opposite direction. Sir Fred Goodwin, SMP for Dumfries and Galloway declares the wall unconstitutional and demands for its immediate privatisation.

Following the closure of the Anglo-Scottish borders in 2014 the EU president Nigel Farrage calls for England to be evicted from the EU for its behaviour towards the Scots. Prime Minister Rothschild agrees to dismantle the wall and sell the bricks on ebay to pay the ever growing deficit caused by the second bailout of the banks in 2011 and the decision of then PM David Cameron to sell Northern Rock to James Goldsmith for 4 million pounds at a monumental loss to the taxpayer.

Gordon Brown, head of the IMF, agrees to allow "exceptional circumstances" to over-ride the entry criteria and Scotland joins the Euro.

On May 17th a row breaks out about the design on the new Scottish Euro coinage as to whether it should have the head of the UK's King William or Scotland's head of state Lorraine Kelly. Scottish voters demand an immediate return to the UK and its "old money". Violence erupts and the wall is pulled down crashing sterling as a result of the £650 billion loan that English finance minister Hazel Blears had taken out with PayPal just after her defection to the Conservative party. A UN peacekeeping force of Afghani soldiers is deployed in Berwick on Tweed but fails to cover the rest of the border as the soldiers become captivated with the lace and humbug memorabilia in John Prescott's gift shop.

On June 23rd Prime Minister Rothschild takes England, Wales and Northern Ireland into the Euro and forms an alliance with the Scots in which the Scottish parliament covers all four countries in return for a fixed fee for the management of the region covered by the Conservative government. The deal, knows as fookyootoo, privatises the entire management of the former UK and generates 20 billion Euro for the UK's leading bank Goldman-Rothschild PLC. The problem of who's head to place on the Euro coinage is resolved by the decision to use the head of the late Tony Blair, former PM, ambassador to the middle east and Catholic suicide bomber.

On September 11th the former UK is purchased by Nomura Securities and turned into a burger restaurant. The general manager for the area known as "England", Deepak Patel, appears on the front page of the Wall Street Journal (Europe) with a delegation of the new Japanese owners and is quoted as saying "the former UK now rivals Chengdu as a world city". Daily Mail editor Harriet Harman calls it a great day for Great Britain.

The Euro finally reaches parity with the Yuan.