Said referendum being, of course, whether they should pay the bills that their government has been racking up for some time. The Daily Telegraph explains the situation that would arise from a No vote:
…it’s game over for Greece’s membership of the single currency. The country’s banks don’t have enough money to last for much longer, and there is little reason why the European Central Bank would wish to extend them billions more if it is snubbed by voters. Either the banks would have to stay shut, which means that the country will run out of food and essentials as it becomes impossible to pay for imports, or depositors would have to be bailed in, wiping out a large chunk of their wealth but recapitalising financial institutions.
The only other alternative would be for the Greek state to introduce IOUs and then a new physical currency, while re-denominating all Greek bank accounts into drachmas. The national debt, which is owed in euros, would explicitly be repudiated, triggering a major crisis and inflicting vast losses on the European Central Bank, IMF and other creditors. The new drachmas would, of course, plummet in value, and it would be hard to avoid widespread chaos and hyperinflation if the government is forced to crank up the printing presses to pay for its bills.
I believe that the assumption here by Greece is that the European Union will not let repudiation and re-denomination get that far. I… do not think that it is wise to count on the kindness of European self-appointed ‘elites.’ At any rate: guess we’ll find out: “89 percent counted – 61.45 percent in the No camp to 38.55 percent Yes.” In my experience, if you have 61% at 89%, you call the election. Which means that now we see what the European Union will do.
On the plus side? The euro’s dropping against the dollar. If you wanted to order something online from France or Germany, now’s the time*.
Moe Lane (crosspost)
*Yes, I’m wildly exaggerating. I’m also making a joke that’s at the very edge of my fiscal vocabulary, or possibly a little bit beyond. Still, confidence in currency is still very much a thing.
All any fiat currency has backing it is confidence and inertia.
It’s going to be “interesting” to watch the dominoes fall.
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In Greece, the populous wants goodies from the government, but an overwhelming majority of them also refuse to pay their taxes.
It’s a democratic country, so any government that didn’t both provide goodies and turn a blind eye to tax evasion would quickly be out on its ear.
So they borrowed more than they could afford to repay.
The so-called elites of the EU were happy to lend in the rather strange belief that centralized financial leverage would turn Greeks into Germans.
It didn’t happen.
The European Central Banks are very exposed, and very badly want some actual repayment beyond “I’ll gladly pay you Thursday for a cheeseburger today”.
But the Greek populous still demands its government give them goodies, and still refuse to pay their taxes.
The EU put the screws to the last Greek government, and the government caved. As a result, they were quickly tossed out in a landslide. This party got elected on the platform of “not one red cent”, with more than a bit of that old fashioned Europe racism thrown in. And they’re considerably more scared of their citizens than they are the EU.
Meanwhile, Putin is more than happy to stoke resentments.
Then the EU Central Banks are overexposed, undercapitalized, and about to have all the assets of Greek bonds evaporate.
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The groundwork for the next European war is being laid.
Maybe we’ll be able to stay out of it this time.
I forgot to add that the EU recently “offered” very generous terms to Greece, and tried to switch the paperwork for something putative at the official signing ceremony.
The Greek PM actually read what was put in front of him to sign, and it went over about as well as you’d expect.
I just placed an order from the Netherlands on BrickBaY. I’m hoping for a small drop tomorrow as I haven’t paid yet.
The thing is that the only way Greece can ever get on something resembling a reasonable economic footing is to get out of the Euro. But being kicked out overnight is going to be very bad.
Looks like my wine just got cheaper
… you favor Greek wines?
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Mew
I don’t know that this is necessarily bad for their long-term stability as a nation-state. The problem is that the debt is simply too large for them to ever possibly pay it off with anything remotely resembling a valuable currency. So their two options have been, for awhile, repudiate the debt, or hyper-inflate it away. That they’ve kept kicking the can down the road making the inevitable pain worse is no surprise.
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At some point this was going to happen, now we all get to see the consequences.
Coming soon to our very own United States : Puerto Rico , Illinois/Chicago , NJ , NY , RI and many many more . If there were any real conservative leadership , they would be out front , not warning of the dangers , too late for that , but declaring that the solutions lay within the states that created their own problems . There will be no federal bailouts : no long weekend confabs of the best and brightest for ‘ emergency ‘ and ‘temporary ‘ non solutions . There is plenty of time for these left wing Krugman/ Keynes paradise states to do what they must, but they need to start now and they must know that there will be no federal bailout . None .
Jindal had been sounding the horn. I’m not sure about any of the others.
Of course, the media is mocking him for it, to the extent they actually acknowledge his existence.
*sips coffee*
This is, I think, the appropriate response.
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That, and bending Santayana…
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Those who do not learn from the past damn us all to re-live it.
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Mew
Hypothetical question – how to fix Greece?
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Personal opinion, the first step is to make tax collection a local matter – shift the central government from taxing individuals to taxing municipal entities – Athens must pay $X per capita, etc. etc.
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This means it’s up to Athens to get that money .. and up to Athens to figure out how to go about it… and the Athenians know darn well who’s not paying up, so …
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Mew
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p.s. yes, this does map rather well here – D.C. taxes the individual States, and it becomes up to each State to get the money from their citizens…
Make the new Drachma bills large, and a bit softer, maybe…
Planning ahead is always a Good Idea.
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Water solubility might be an issue …
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Mew