Greece - Syriza wins election, forms coalition, Eurozone problems immient

[ExtraSlow]

Haven't seen any chatter about this, but I think it'll be a big story this year.
Greece's far left-wing Syriza party just won a general election, and was very close to an outright majority. They quickly made a deal with the "Independent Greeks" party, and that coalition does have a true majority of votes. Both parties are very anti-austerity.

This has huge implications for all of the Eurozone, as the previous bailouts of the Greek government were based on promises of increased fiscal prudence and reduced government spending. If they decide not to abide by the terms of the bailouts, the Eurozone bankers can call the loans, and essentially force Greece into bankruptcy.

I see a few possible outcomes
- Greece exits the Eurozone after failing to appease the other powerful members (Germany notably)
- Greece makes threats, but ultimately continues on the path chosen for them by the rest of the Eurozone.

I can't see any way they can spend their way out of this crisis, particularly if they were to stay on the Euro currency.


If Greece exits the Euro, I fully expect it to descent into third-world status fairly quickly. I've always wanted my own island, and Greece has several thousand of them.

[ExtraSlow]

Originally posted by Reuters, Mon Jan 26, 2015

Syriza's choice of coalition partner spooks markets
BY ABHINAV RAMNARAYAN

LONDON, Jan 26 (IFR) - Syriza's choice of another anti-austerity party as coalition partner sparked a sell-off in Greek bonds on Monday after a relatively stable start to the day for the country's debt.

Greece's 10-year bonds opened the day bid at 8.67%, according to Tradeweb, inside Friday's highs of 9.48%, after anti-austerity party Syriza won 149 seats in Sunday's parliamentary elections, falling just two seats short of an absolute majority.

But after Syriza agreed in principle to form a coalition with the Independent Greeks, bonds widened to 9.14% by 1621 GMT. Investors are concerned that a compromise between Greece's troika of creditors - the European Commission, the ECB and the IMF - and the new government will be difficult to find.

"They are even more aggressively against the troika than Syriza, if anything, and bond yields widened on the news. We will just have to wait and see what sort of policies emerge in the days to come," said Darren Ruane, head of fixed interest at Investec Asset Management.

The Independent Greeks are relative unknowns to the investment community - the party was formed in 2012 in the wake of the first Greek debt crisis - and this has left the market uncertain.

"The only we seem to know about the Independent Greeks is that their focus is on the social policy side of things, and they adhere very strongly to the view that the austerity measures are to blame for Greece's economic problems," said Alan Wilde, head of global fixed income at Baring Asset Management.

One of the main questions for the market is how all of this will affect ongoing bailout negotiations ahead of a February 28 deadline.

One of Syriza's key promises was to force the troika to soften terms on a bailout package and perhaps even force a haircut.

"That's the red line. As long as we are talking in terms of financial engineering I think there's some goodwill and understanding from the Europeans, apart from maybe the Finns. Once we start talking about haircuts, that's when the markets will start worrying again," said Gilles Moec, head of developed Europe economics at Bank of America Merrill Lynch.

The other question is whether there will be any contagion to other parts of peripheral Europe. As of now, there has been no sign of it and the market is viewing the elections as a purely Greek event, as it has for a few weeks now.

Last week's QE announcement from the ECB is curbing potential volatility. Italy's 2.5% December 2024s, for example, were 3bp tighter on the day to a bid yield of 1.48% at 1622 GMT, according to Tradeweb.

However, there could be some effect down the line if other anti-establishment parties take their cue from Syriza.

"This result could have an important influence on politics in other countries. In Spain, for example, the anti-austerity party Podemos could potentially benefit by having more of a platform," said an analyst. (Reporting By Abhinav Ramnarayan, Editing by Helene Durand and Julian Baker)

[SmAcKpOo]

What kind of impact will that have on the world economy?

[HiTempguy1]

The EU has always been a pussy.

They will rework it, and stick their citizens with billions upon unpaid billions of forgiven loans that Greece will never pay back. Throughout the past two centuries, when has a foreign government EVER repaid their debts in full?

Stupid bullshit appeasement. It caused WW2, and it causes a LOT of our modern global problems.

[revelations]

Someone correct me if I am wrong, but my impressions of whats happening in Greece was a combination of corrupt politicians, huge levels of bureaucracy and extremely low productivity from the general populous.

Until these two things change (not overnight), Greece will be unable to compete/optimize itself with countries in the EU.

edit - article is a good summary (2012, looks like not much has changed)

http://www.theglobeandmail.com/news/world/the-roots-of-the-greek-tragedy-bloated-bureaucracy-and-tax-evasion/article582943/

[Sugarphreak]

...

[ZenOps]

Print more Drachma!

[ExtraSlow]

Originally posted by ZenOps
Print more Drachma!
Sadly, they don't even have this option as they are using the Euro. They'd need to exit the euro, and then they could print all the currency they want, and just inflate.
Still, thier debts aren't in a currency they control, so unlike the USA, massive inflation don't have that benefit.

[Xtrema]

http://www.thelocal.de/20150104/merkel-ready-to-let-greece-exit-eurozone-report

EU is prepared to go without Greece.

http://www.cnbc.com/id/102367704#.

May eventually let to break up of EU but everyone is better for it.

[ExtraSlow]

Originally posted by CBC News
ANALYSIS | Alexis Tsipras's win in Greece a major test for eurozone: Don Murray
Left-wing Syriza party wins election, narrowly misses forming majority government
By Don Murray, CBC News Posted: Jan 26, 2015 9:57 AM ET Last Updated: Jan 26, 2015 9:57 AM ET


“Greece has turned a page. Greece leaves behind catastrophic austerity, it leaves behind fear and authoritarianism. It leaves behind five years of humiliation and suffering.”

That was Alex Tsipras, the 40-year-old head of the left-wing anti-austerity party Syriza, which won a resounding victory on election night on Jan. 25.

Decades ago, in the cold war, The Mouse That Roared was a satirical little film about a backward little country in Europe, the Duchy of Grand Fenwick, that bumbled into prosperity by playing off the battling superpowers of the time.

Greece is now the little country in Europe hoping to play off the different countries of the eurozone to shrug off its enormous debt load and stumble back to a semblance of prosperity.

In one corner, the paymaster – Germany, with its leader, Angela Merkel, preaching her homilies of the good German housewife who never spends more than the family earns.

In the other corner, France and Italy, with flatlining, even contracting economies after years of struggling to be good German housewives. The result, across the eurozone, is the risk of deflation and the European central bank beginning "quantitative easing" — a fancy term for printing money — in a desperate effort to refloat the sinking ship.

Growth first?

France and Italy lead the calls for a relaxing of austerity in the eurozone and a return to Keynesian deficit spending to get the continent out of the economic morass. Significantly, French President François Hollande and Italian Prime Minister Matteo Renzi quickly congratulated Tsipras.

Greece Election
Many Greek voters were moved by Alexis Tsipras's message that a Syriza win would mean an end to the 'humiliation' of austerity measures imposed by eurozone countries like Germany. (Fotis Plegas G./Associated Press)

Hollande expressed his "desire to pursue the close cooperation between our two countries in the service of growth and stability of the euro zone.” Note that: growth first.

No country has suffered from austerity as much as Greece. Its economy has contracted by 25 per cent, its unemployment rate is 25 per cent. Youth unemployment is nearly 60 per cent, a third of the country lives below the poverty line. Its debt stands at 175 per cent of its national output.

The pain has been enormous and, despite the assurances of the international experts and bankers, has been deeper and gone on far longer than they predicted.

To be sure, Greece got itself into the mess by cooking the books – falsifying the national accounts to mask a large debt load – to get into the eurozone more than a decade ago, and then gorging on loan money that left the country all but bankrupt when the crash hit in 2008.

Like a penitent prodigal, Greece agreed to swallow the bitter medicine. That was then. Now the mouse has turned.

The eurozone's evolving 'story'

Tsipras has sworn to reduce the Greek debt mountain by simply refusing to pay and getting outside creditors to write off most of it. He has also told exhausted voters his government will bail them out by raising the minimum wage, restoring electricity to those who have been cut off and providing health care for the uninsured.

It sounds almost pie-in-the-sky. But listen to Angela Merkel, just last week: “I want Greece, despite the difficulties, to remain part of our story.”

That’s the story of the eurozone. But at the same time, she said Greece had to pay its debts. And offstage, her officials were hinting that if Greece fell out of the euro, it wouldn’t be a huge crisis.

Greece elections
No country has suffered from austerity as much as Greece. Its economy has contracted by 25 per cent, while its unemployment rate is 25 per cent. (Alkis Konstantinidis/Reuters)

Taken together, that’s about as economically contradictory as Tsipras's populist offerings.

The fact is, none of Europe’s leaders, from Tsipras to Merkel, know what will happen next. For example, despite many predictions to the contrary, the euro's first reaction to the Greek election outcome was to rise slightly, not fall, against the U.S. dollar and the British pound.

That hardly lays the groundwork for a long-term solution. Better, many economists and some politicians are now saying, to slash Greece’s debt – write off a huge chunk as worthless paper. After all, they say, that’s what the Allies did with half of West Germany’s debt in 1953.

And the result was the "Wirtschaftswunder," Germany’s economic miracle as it rebounded from the ashes.

Anti-austerity sympathizers

Merkel and her people don’t want to hear about it. German voters are already fed up with paying for what they see as a rancorous and ungrateful small country to bail itself out. More important, a debt deal would send a signal to anti-austerity forces in neighbouring countries to clamour for a similar deal.

Spain, in particular, faces elections in the fall. Like Greece, it has gone through searing economic pain, and like Greece, it has a fierce anti-austerity party, Podemos, whose stock is rising steadily in the polls. It’s the German housewife’s nightmare.

In two weeks, Greece’s newly elected prime minister will meet other European leaders for the first time. He promises he will refuse to wear a tie, just as he will refuse to knuckle under to the existing austerity regime imposed by Europe and the International Monetary Fund. In the corridors, he may get whispered encouragement from officials from France, Italy and Spain.

It’s a poker game; the Germans want to win and they are vastly more powerful. But the Greeks, led by Tsipras, feel they have nothing left to lose.

In the fairy-tale film, the roaring mouse of the Duchy of Grand Fenwick lived happily and prosperously ever after.

The fate of the raucous rodent of today’s Europe is far less certain.

[ZenOps]

The greeks specifically voted in a party that will spend spend spend.

If the Eurozone does not give them more Euros, I don't see much of a way out other than going back to the Drachma.

I'm sure the greeks see themselves just like the 47 million foodstamp users in the US, that being - stop being so cheap and give me my free food. Merkel is like Harper, fiscally conservative - probably too fiscally prudent.

[ExtraSlow]

Harper and Merkel kind of look similar too. I don't want to start too many crazy rumours, but is it possible they were both cloned from the same seed provided by their lizard king Illuminati overlords?

[ExtraSlow]

Damn you Zenops! I just realized that I'm now trolling a thread I started.

[HiTempguy1]

Originally posted by revelations
Someone correct me if I am wrong, but my impressions of whats happening in Greece was a combination of corrupt politicians, huge levels of bureaucracy and extremely low productivity from the general populous.

Until these two things change (not overnight), Greece will be unable to compete/optimize itself with countries in the EU.


More like a corrupt population. Tax revenue is virtually non-existent in that country from my readings. Tax dodging is expected... how a country can operate like that is beyond me considering their social welfare system is so much more costly than lots of other countries'.

In short, high social costs plus cheating of the system by citizens, corporations, and government equals what we have today. A whole overhaul of their society is required. Nothing short of complete economic meltdown will fix that.

Look at Russia; in the early 90's when shit went south, the decimation was not even bad enough to change them, they are in the exact same place they were two decades ago.

[revelations]

Originally posted by HiTempguy1


More like a corrupt population. Tax revenue is virtually non-existent in that country from my readings. Tax dodging is expected... how a country can operate like that is beyond me considering their social welfare system is so much more costly than lots of other countries'.

In short, high social costs plus cheating of the system by citizens, corporations, and government equals what we have today. A whole overhaul of their society is required. Nothing short of complete economic meltdown will fix that.

Look at Russia; in the early 90's when shit went south, the decimation was not even bad enough to change them, they are in the exact same place they were two decades ago.

^ yea, societal for sure. The article talked about a huge underground market for people to hide their swimming pools from aerial, government tax assessors. :rofl:


The sight of a helicopter can cause panic in the plush suburbs of northern Athens. Residents know it could be a spy machine, hired by the government to take images of their backyard swimming pools.

Tax collectors make doctors and lawyers squirm by asking how someone who claims to be earning only $20,000 a year can afford such luxuries. Of the 17,000 pools spotted, only 324 had been declared....

...Tax evaders are proving as clever as the helicopter-borne taxmen - they're buying camouflage covers to make their pools blend into the landscape.

[ExtraSlow]

Originally posted by CBC News,
Why Europe fears a Grexit more than a new bailout
Neighbours' biggest worry about Greece's departure from euro: What if it works?
By Don Pittis, CBC News Posted: Jan 27, 2015 5:00 AM ET Last Updated: Jan 27, 2015 6:44 AM ET


Europe is caught on the horns of a dilemma.

Just when economists and financiers were dusting their hands over a job well done fixing Greece's economy, they stumbled across an irritating roadblock. From its birthplace, democracy intervened.
In a warning that goes far beyond the continent, European governments have been forced to realize that satisfying bondholders is not always enough. Bondholders have a lot of power but the Greek election reminds us that, when pushed too far, voters have more.
Hardliners, notably from Germany, complain that Greece has already had its bailout and that the rich countries of Northern Europe should now wash their hands of their ne'er-do-well southern neighbour. As Don Murray of CBC News says, Germans would do well to remember they have benefited from bailouts.
But there is a more self-interested reason for them to be charitable: The alternative could be even more costly.
Greece's critics say the country's current financial mess is its own fault because it borrowed too much. By that argument, if Greeks reject the discipline of austerity, they alone should accept the consequences of leaving the euro, the so-called Grexit.

Flawed argument

The argument is flawed in two ways. One is that in the world of finance, borrowing too much money is not just a problem for the borrower. Lenders also take a share of the responsibility, partly by setting interest rates high enough to cover losses from risky loans.
It is written right into the principle of bond lending that some borrowers will default. That is why interest rates differ. In theory, the high cost of borrowing discourages risky borrowers. The high income from those rates pays for a higher than expected rate of default.
For a number of reasons, default is difficult while Greece continues to use the euro. But if it exits the euro and switches its euro-denominated loans into a new currency, it can safely devalue that currency and start afresh.
The other flaw in the anti-Greece argument is the view that only Greeks will be hurt. The fact is that while the new currency, let's call it the drachma, would make European goods more expensive, the burden of austerity would be gone.
The country would no longer have to sell its public enterprises to the private sector, and most of the money lent to it by European banks and governments would have disappeared.

European pain

If a Grexit happens, European institutions will have lost just as much cash as if they had made a deal to forgive some of the Greek debt. There is no guarantee such a separation would be painless, nor that a post-euro Greece would be a trouble-free, easygoing member of the European Union. The tearing sounds would be loud, both inside and outside the eurozone.
But there is a much worse outcome for the countries of Northern Europe -- if a Grexit is a success.
It is possible that wiping out the debt and revaluing the currency would turn the Greek economy around, spurring the country's key tourism industry, rebuilding manufacturing, creating jobs and transferring wealth from the Mercedes-driving elites to the people who backed the new prime minister.
It is possible that Greeks, having witnessed the pain of economic deprivation and austerity, will find a new resolve. Tried by fire, they could work together and allow their new government a chance to rebuild. Even if they are only partially successful they would be a model for other struggling Southern European economies.

Warning from Piketty

As the best-selling French economist Thomas Piketty has said, one reason inequality is a threat to capitalism is that if enough people feel they are not getting their share they will elect governments that will turn against global capital. If the Greek democratic revolution is a success, how long until a Grexit is followed by a Spanxit, an Itxit or a Franxit?
The deal is far from done and things could still go wrong. But no wonder most European governments say they are willing to negotiate better terms that will improve the lives of ordinary Greeks. No wonder bond markets are so confident the Europeans will offer a deal satisfactory to the new Greek prime minister Alexis Tsipras. The alternative is even less appealing.
For those of us who may have grown cynical about democracy and the power of money to influence elections, the Greeks have taught us a wonderful, upbeat lesson. People will accept a lot of hardship in exchange for stability, but they will only be pushed so far.
This is a warning to financial markets everywhere that for good or ill, in a democracy voters get the final say.

[ZenOps]

http://www.pcgamesn.com/valve-s-economist-may-become-greece-s-new-finance-minister-fear-the-hat-event-horizon

This could work. A man who understands the dollar market for virtual hats in Team Fortress 2.

As a realist speaking, virtual hats should be worthless - and yet people pay hundreds of dollars for them.