What is going on in Greece?

[Thorn]

Nigel Farage:

Exactly one year ago, I spoke to an audience of investors at the local money show in Athens, Greece. I told them that, over the next 10 years, there is a big possibility that Greece and Italy would voluntary leave the euro. Everyone's jaw dropped!

My logic was simple. If and when we get a big rescission in Europe, these two economies would not be able to handle it. As a result, there is a big chance that they will leave the euro to be able to print drachmas and liras in order to meet their obligations… mostly to their citizens.

Well here we are one year later and already Greece and Italy are in great financial pain (if not on the verge of an economic collapse).

While the euro is a great currency and offers many benefits to those economies that have it, the euro also requires fiscal responsibility and other obligations. For one thing, you can't be part of a strong currency block of nations when you are not competitive.

So far the EU (did anybody say Germany) has washed its hands and has sent the message that every country must clean up its own mess. Greece has responded by announcing a bank package to help its local banks. Basically Greece will issue government bonds and give them to the banks and then the banks can post them as collateral to get funding.

However, as much as €40 billion of Greek government debt comes up for renewal in 2009. Will Greece (and Italy) be able to refinance this debt? Chances are they will, but at what price?

Already the CDS spreads that measure the possibility of country default are about 250 for Greece, leaving even Italy far behind! Even if Greece is able to find the money it needs in 2009, what will that do to its public finances and its ability to meet its social obligations?

You probably all saw the riots in the streets of Athens the past month. That's nothing compared to what will happen when (not if) the government announces that retirement benefits for the Greek public sector will have to be axed at some point.

If Germany and the EU insist that Greece and Italy handle this market turmoil by their own, then chances are that at some point in the future, these economies will break down and (reluctantly) be forced to exit the euro in order to be able to print money and meet obligations.

Like I said, so far the EU is playing hard ball and will not help Greece (or Italy) in any way. You all know how the game of chicken is played don't you? It goes like this.

Two cars at great speed race towards each other in a head on collision. The one who gets out of the way looses. The winner is the one who had the nerve and the lack of self preservation and carried the game to the end.

Now let's say that Greece and Italy struggle on their own and this recession continues for more than we all bargained for. Chances are that Greece and Italy, at some point in the future, will voluntary leave the euro to print their own money to meet obligations.

What does that mean for European banks?

Well European banks have at least €800 million of Italian and Greek debt on their books. If these two countries leave the euro, you can bet that their bonds will lose at least 60% of their value.

This means you can say goodbye to the European banking system (what's left of it) and say goodbye to the euro.

So the question is this: Will Germany and the EU let Greece handle the financial crisis by itself, only to be forced out of the euro in several years, or will they step in and help, in order for Greece (and Italy) to overcome this very difficult period?

My bets are that they will do whatever is possible to help. When you have nothing, you have nothing to lose. Greece and Italy at this point have nothing left to lose. The EU and the German hardliners however have everything to lose, if they allow the situation in Greece and Italy to get out of control.

So getting back to the game of chicken, I think a head on collision will be averted, because Germany and all the other EU hardliners will come to their senses and realize that, they have a lot more to lose by a head on collision then they would by averting one.

In either case, the EU hardliners will lose anyway, but by stepping aside and letting Greece and Italy win, they simply lose less.

---------------
Tough Credit Threatening EU Companies

16 January 2009, 16:50 CET

(BRUSSELS) - European companies could increasingly be driven into bankruptcy unless it becomes easier to get credit, the European employers association BusinessEurope warned on Friday.

"We really need to concentrate attention on this ... because at some point we might lack financing and the companies stop (and) they are bankrupt," BusinessEurope president Ernest-Antoine Seilliere told reporters.

European companies face a crunch year in 2009 as they try to refinance debt accumulated over the past years at a time when the credit markets have all but dried up due to the global financial crisis.

BusinessEurope economics director Marc Stocker said the situation "will intensify in the coming months if we don't see (normal) financing conditions being restored.

"Companies will have more difficulty in financing their investment and this is a major source of concern," he added.

Corporations are on average paying close to six percentage points more in interest on euro-denominated bonds compared to low-risk government bonds, well above the more usual one percentage point spread, Stocker said.

Seilliere said BusinessEurope was considering a number of proposals to ease financing conditions, including the possibility of calling on the European Central Bank to buy up short-term corporate bonds as the US Federal Reserve is already doing.

"Obviously we envy those countries where the central bank has decided to take commercial paper," he said.

By buying such paper the US Fed will effectively be putting more cash into circulation at a time when it has cut its main lending rate to virtually zero in an effort to ease the worst US slowdown since perhaps the 1930s.

[Balozi]

first of all just black text would do :P

secondly who is this guy... he can't even speak proper english

[Kula]

Thorn crawls out of his lair whenever he reads something bad about his arch-enemies. :D

[Bardhi]

thorn does not understand the fact that even if Greece collapses they are still much stronger in any aspect than FYRMacedonia.

[WisdomSeeker]

What is going on Greece is going on within the entire eurozone. There is no way that Greece will leave it because it will be a serious hit on the euro currency itself.(meaning that it will be destabilised).

It is not a coincidence that euro was the only currency that is holding its value during this serious crisis. Dollar is dropping,yen is dropping too,guess why there are those various ''golden boys parrots'' in USA that spread these things.


While the euro is a great currency and offers many benefits to those economies that have it, the euro also requires fiscal responsibility and other obligations. For one thing, you can't be part of a strong currency block of nations when you are not competitive.


I beg to differ. Greek governement has recently issued these bonds your source talks about and there has been a surplus of demand for them. I am sure an economologist will tell you far better than myself about what this means in terms of competiveness.

[kgram]

I will try to explain Greece, from the economy point of view.

Greece is producing its food. Meat and milk imports are covered by fish and fuit exports. Local production of lettuce and cereals is sufficient for local needs.

Greece is indepentent in energy. Electricity is produced by local lignite ( a low quality coal), waterfalls, wind-generation and oil. Greece is not producing oil, by is the major oil transporter. The greek refinaries, owned mainly by ship-owner families, never had problems of crude oil supply - since their owners are major business partners of the oil producing states, and they transport their oil worldwide.

Greeks are the champions in EU concidering ownership of the house. 88% of greeks live in their own houses, and in more than 90% of the greeks that pay a mortgage loan for their house, the risk if they fail to pay the loan, is to move to their smaller old house that they now rent (and they use the rent to cover totally or partially their loan), or to be oblged to sell some property they own in the provence.

So, if we come back to the basics, the international economic crisis will not affect greeks considering their ability to feed properly their families, which will continue to live in fully energy supplied private homes.

But of course it will affect them. Greece never was an industrial country, mainly it was a country split between agriculture and services. And the main services that brought real money in the country were shipping, tourism, and labor of immigrants.

Since the international crisis means less products to be transported, less tourists to visit the country, and less working places for the greek immigrants abroad, it is certain that less money will come to Greece.

Some signs have already appeared :
1. Less money is spend on entainterment (night clubs with live music - bouzoukia)
2. Less money on paid vacation -travels abroad or to hotel resorts - the option of family house in the mountainous village or the island was very popular this year.
3. The habit of this generation to change car every 5 years (for a better one) - while the previous generation bought a car of 1-1,2 lt for a lifetime, slowed down.
4. Electric-electronic devices and clothing markets are facing a sudden drop.

And if the crisis continues for more than 2-3 years?

Then, I don't know what will happen. Greece can survive for 2-3 years without loosing the basic facts that shape what is called "quality of life". Because if my family has proper meals, the house is warm, and we have electricity so that our TV and PC's work, and we can spent 20 days by the beach in the summer, at our grant-parents village, then I consider that we still have a quality of life - even if our car is 7 years old and our PC still uses Windows XP.

The main reasons why Greece can survive a 2-3 year crisis are the fact that greeks in total have money - (more than 90% of the capital of the greek banking system are deposits of greeks, widelly disperced in small capitals), and the grrek family tights are still very strong.

While my generation (I'm 48, born in 1961) are the big-spenders (when we started to realise the world, 1974, Greece fastly moved from an underdevelopped dictatorship to a member of EU and Eurozone, and to a country that was receiving instead of exporting immigrants), our parents generation (born in 1920-1930), having lived WW2 and the civil war were the great-savers, and because of the tough times the lived, they are a generation that sacrificed their wellfare in order to support the good life of their children. The result of this attidude is that the money that the greek baning system has loaned to my generation, is more or less equal to the deposits of our parents. Thats why the greek banking system will not collapse because of the international crisis.

[Thorn]

Can you please tell me which banks are the largest banks in Greece and who owns them?

[kgram]

Can you please tell me which banks are the largest banks in Greece and who owns them?

National Bank of Greece is the biggest, is in Athens Stock Exchange, but since many institutes of public interest have big packs of shares, the state controls its management. The next bigger owner is supposed to be the Orthodox Church of Greece, that through various institutes controls around 5-7%. NBG is among the 200 bigger companies worldwide, and has subsidiaries in more than 18 countries, mainly former Eastern Europe, Turkey and countries with substantial greek immigration.

Then its Alpha Bank (its romanian subcidiary is the no4 bank in Romania), widespread private, Eurobank (mainly belonging to the Latsis family of shipowners)and Marfin (belonging to greek shipowners and arabian gulf interests), Piraeus Bank (mainly to greek shipowners), Commercial bank (controlled by Credit Lyonnais).