Economy
In reply to the discussion: STOCK MARKET WATCH -- Tuesday, 14 July 2015 -- Happy Bastille Day! [View all]Demeter
(85,373 posts)NO, I DON'T THINK ANYONE WINS FROM THAT FUBAR DEAL--THE BIGGEST LOSS WILL BE THE BREAKUP OF THE EUROZONE.
http://www.forbes.com/sites/billconerly/2015/07/13/who-wins-from-the-greek-deal-european-politicians-and-maybe-some-greeks/
The Greek deal announced today is good for Europes political leaders, and it might possibly be good for many of the Greek people. The rest of us will be pretty unaffected, except that well pay the costs of future financial crises caused by irresponsibility and bailouts. (The Greek deal is summarized by Jeremy Bogaisky. SEE POST IN REPLY)
European political leaders needed a way to save face. Three years ago they half bailed out the banks that had made loans to Greece. The banks accepted a 50 percent haircut, but got the Eurozone countries and the IMF to pay the banks cash in exchange for the bad debts. Having bought bonds of dubious quality, the political leaders would have been terribly embarrassed by an explicit default. It is far better to strike a deal that makes a solution appear to have been achieved. I say appear to have been reached because it is not at all certain that Greece will be able to meet the new loan repayment schedule.
Some of the restructuring demands, such as labor market liberalization and privatizing more assets, may help the Greek economy. The labor market changes, though, are prone to foot-dragging by the Greeks. Higher taxes are also imposed, and of course they dont help economic growth. Theres also a 30 billion economic stimulus package, but such spending usually has little impact on the economy. Greek pensioners will take a hit. If the new package keeps the Greek banks in business, that will help all residents.
Unfortunately, the new agreement does not solve Greeces problem of being less productive than other European countries (in terms of output per hour worked), nor its problem of having generous social benefits with substantial protection from competition for much of the economy. In the end, the moribund Greek economy is a problem that the Greeks themselves must solve. This deal gives Greece the breathing room needed to enact substantive economic reforms, but I find it unlikely that theyll actually do so. They will probably do enough to meet the terms of the deal, though even that is uncertain. The Greek Parliament has to act quickly to meet the deals requirements.
The new agreement reinforces the precedent that big banks which make bad loans will be bailed out, at least partially. When those banks make good loans, though, they will reap the full benefit. Such policy makes further bad loans highly likely, leading to more crises in the future.
Businesses that sell into Greece should still be wary of their exposure. A Grexit is still possible. I would not trust that any euros owed me by a Greek company would actually be paid in euros. Cash in advance should be the watchword...
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