Greek Referendum

Has anyone been following the financial situation over in Greece? They voted overwhelmingly Against the proposed bailout...

It's probably time to start talking/learning about this - this is going to snowball into a global economic issue.

 

Hmm... I think it's something you guys might want to read up on, particularly since it's one of four major debt-ridden countries that could have a huge impact on the global economy. Greece was just the first to fall victim, more countries are not far behind.

The US has a deficit as well doesn't it, in the hundreds of billions? That is at least in part, sponsored by foreign creditors (most notably, China). If enough countries who owe you guys money default, your deficit will climb to an unmanageable level. It's definitely an issue of global importance, if they've been downplaying its significance in the US Media, then that's very unsettling, because your financial state sucks at the moment as well (we are in the great recession after all).

It isn't a matter of Greece wanting other countries to pay their loans. It's like having a mortgage with an absurd interest rate and being unable to meet your minimum payments and having your house taken away after paying down a fraction of it. The bank then has to foot the bill, because they took a risk on you that didn't pay off. The same is true of those who loaned Greece money.

The terms imposed by the EU bailout were pretty ridiculous (such as garnishing the wages of every citizen to a ridiculous degree), and the people said no to those conditions.

Furthermore, in Canada the prime interest rate is about 3%, in the US it should be about the same... To simplify a bit, that means each year you need to pay an extra 3% of your outstanding balance (in reality it's more). In Greece, it's over 25%! One of the bailout terms was to raise it even more.

I don't really blame them for voting it down.

https://en.wikipedia.org/wiki/Greek_government-debt_crisis

 

They're almost uniformly opposed to leaving the euro zone - that's why they had an overwhelming No vote in the Referendum.

 

Sorry I actually said the exact opposite thing - I meant to say they're uniformly in favour of leaving the Euro Zone (though upon looking into it, it was about a 2/3rd vote).

They voted No to the bailout terms, which means they want to zone, going back to their Drachma and so forth. Whether or not that will actually happen, I'm not sure, but that's what voting No implied.

What I find kind of ironic is that their deficit isn't actually that high - something like $10 per Greek citizen would be enough to pay their entire dbailout amount. What's kind of neat and unprecedented is that someone has actually realized this, and turned to crowdsourcing to try and raise enough money to pay their bailout amount.

 

Then unfortunately, you don't really understand how debt works. There is the potential for a massive chain reaction, and sticking our head in the sand is not a good idea.

I'll respond to DW a bit later when I have a bit more time.

 

Not true - debt can beget more debt. If I loaned money to my friend (and was a bit of a jerk and charged interest, set monthly payments etc) then either I'm in an amazing financial situation where I don't depend on his repayment/monthly payments to pay my bills, or I'm in a bit of financial trouble, and I do. Suppose I'm someone who depended on that money to pay my own lender (like say, a bank for my mortgage). When my friend runs into financial trouble, can't pay me, then I in turn, can't pay the bank, and I would default on my own payments.

You can turn that analogy around and say "well that's poor planning, for such small amounts of money you can get extensions, or find other means of making it work, etc." but the problem is, that's exactly the situation some other countries are in (notably India). Debt isn't simply some static number that dictates how much someone owes - it's income that other countries depend on to balance their books. It's all about dollars earned vs dollars spent - when other "small countries" who loaned money to Greece can no longer depend on Greece to make their loan payments because they've defaulted, they can run the risk of defaulting too. And indeed, there are 3 or 4 other countries at serious risk. The creditors of these other countries will then have to work on their contingency plans.

Sure if one person were to file for bankruptcy, it would have little effect on say, a major bank's long term plan. However if millions of people did, they would have to. Should these other countries all default together, then the effect may pass to slightly larger countries, whose creditors would then be at risk, and the chain would continue.

Now I don't know how high it would go, if at all, past Greece. I'm not saying it will affect this or that, all I'm saying is we should care about this, this isn't a small deal. But it certainly has the potential, so we should be careful and learn about this before it becomes an even bigger deal.

If the issue remains isolated to Greece (honestly, fingers crossed) then I agree completely with this. The problem is if it does not.

Furthermore, a Grexit would have legal implications as well - membership in the EU would no longer be 'forever' and several other countries that either hate being in the EU, or have their own financial difficulties may want to leave as well. Greece leaving, although rather trivial in and of itself, will be a crack in the EU's foundation that could turn into a big problem (particularly during "rainy season" ie. a great recession like we're in).

The referendum asked "Are you in favour of this bailout?" and there was a 60-something percent resounding No vote. By voting No, people are saying they would rather leave the EU than put up with the harsh consequences imposed by that bailout.

So people may not want to leave the EU, but they would rather do that than be subjected to those terms.