Forum Post: Is this what a run on Greek banks looks like?
Posted 11 years ago on May 17, 2012, 12:23 a.m. EST by TomTommorow
(78)
from Hardyston, NJ
This content is user submitted and not an official statement
http://news.yahoo.com/run-greek-banks-looks-180100901.html
It seems the Greeks are withdrawing what little savings they have left from the banks and have been doing so for a months. Some have said they were scared of the possibility of a change over switching from Euros to the old Greek currency and that would make their Euros worthless. I suspect more may be going on and they maybe using the withdraws as a form of protest as well.
Any way hats off to the Greeks they helped get these whole protest thing started and are standing up for themselves and the Greek nation. Maybe we can learn from them. I wished Americans had half the manhood and backbone left the Greeks have.
They aren't worried about worthless Euros, they're worried about worthless drachmas. If Greece withdraws from the Euro zone, it'll start printing its own money. That means bank accounts in Greece will be re-denominated in Drachmas. Since the Greek government is completely broke and dependent on foreign handouts, that money will be essentially worthless, and hyperinflation will set in, so everybody's savings will become worthless very rapidly. That's what people are trying to prevent by withdrawing the money now while they can still get it in Euros.
A lot of people will try to deposit the money in foreign banks, but if the run on the banks gets really bad, look for the Greek government to pass a law limiting the transfer of money out of the country to prevent that from happening. When that happens there'll be a massive black market in Euros as people do what they can to avoid getting stuck with increasingly worthless drachmas.
They should at least have a three to five year transition period, and their membership in the basic European Union framework shouldn't be affected. I think it's unfortunate that the Euro was put together in such a sloppy way, and Greece is obviously is an unenviable situation. Many "conventional" solutions are pretty much out of reach for Greece, so they will need some real ingenuity to get out from under this situation.
Unfortunately the Greeks are long past having any good options. The government's revenue shortfall is something like 40% of expenditures, and that's after wiping out almost all of the debt from all the money they borrowed from banks. No bank or private investor will lend them money for a long, long time under any circumstances. So they're stuck with welfare from other countries, and those countries won't give it to them unless they make very drastic and painful changes. If they default on everything and walk away, it still doesn't solve the 40% revenue shortfall. And if they solve the revenue shortfall by printing worthless money, the government solves its debt problem, but on the backs of every Greek citizen or any other person who has to accept that money. At this point, there's no way to avoid some really bad consequences unless the other European countries are willing to prop them up indefinitely. That's what they're hoping for, but the Germans are having a hard time explaining to their taxpayers why they should pay billions of Euros so that the Greeks can retire 10 years earlier than they do.
The normal retirement age in Greece is 65, in Germany it's 67:
http://en.wikipedia.org/wiki/Retirement
However, there is a ten year disparity in the "early retirement" age (I'm not sure what early retirement age means exactly, I just know it's 55 in Greece and 65 in Germany). I suspect early retirement in Europe might be akin to some union retirement plans in the US (for instance, workers who do extremely arduous manual labor might need an earlier retirement age because their bodies wear out at some point in their mid to late 50's).
In Greece, only 31% of workers are still employed past 55, only 18% past age 60, so people are obviously taking advantage of early retirement. That's great if you can afford to pay pensions to everybody, but Greece can't, and they've gone broke trying. They can't afford to have 30% of the workforce on the public payroll either. They want the Germans and Danes to pay for it all instead.
Right, this is true (and it's hard to believe that such a large share of the population works in occupations that are so physically demanding ... they can't work beyond 55 years old). However, why do we see such a large portion of Greeks retiring so early? There's one obvious explanation:
Unemployment rate, Greece: 21.7% of the labour force - Seasonally adjusted data - Jan 2012 Source: Eurostat
Herein lies the problem. The Greek economy was simply too weak (relative to other European countries) to join the European monetary union, while the German economy is very strong relative to other European nations. The result of the European monetary union was to make Greek currency much stronger than it would have been if they retained their own independent currency, and make the German currency much weaker than it was prior to introduction of the Euro. This made Greek exports much more expensive for overseas buyers (compared to what we would expect under normal market conditions), while German exports became much cheaper for overseas buyers. Therefore, Germany has benefited at the expense of nations like Greece (and indeed the Euro has resulted in a wealth transfer from the poor nations of Europe, to its wealthier nations).
Agreed, the Greeks ought not to have entered the monetary union. But even if they hadn't, they'd still have a big problem. They've been borrowing massively to support public spending for decades, and if they hadn't joined the currency union, they'd still be in hock up to their eyeballs. They'd have a different mechanism for dealing with it (turn on the printing presses and devalue the currency, just like they will if they leave the euro), but it wouldn't change the basic issue: Greece is trying to support a public sector and social welfare benefits its economy simply can't pay for.
Some of the revenue shortfall is because Greeks no longer want to pay taxes to a corrupt government. If the Greeks default on the debts, and they believe their tax money will be used to run their government instead of paying interest, they might be willing to pay their taxes.
Well, the debt was there because the government borrowed the money to pay everybody benefits it couldn't otherwise afford to give them, and they were unwilling to tax themselves to provide them. The corruption was in buying votes with borrowed money and promising social welfare benefits the country couldn't afford. Nobody was complaining back then, they just took the checks.
But the debt and interest payments are gone. They were effectively wiped out by the restructuring. Now the problem is they still don't have enough money to keep the lights on, and they want the EU to give them hundreds of billions of dollars a year with no strings attached, since no one else will loan them money anymore.
The problem with Greek taxpayers is that they never wanted to pay taxes in the first place. They wanted government benefits without paying taxes, and the government was willing to oblige.
While some of the money was obviously used to pay government salaries and benefits to the people, some was also diverted to corrupt officials and bankers. The stories about how the debt got so large are interesting, and it was not just because of entitlements.
Actuaries have been warning for most of the last 20 years that the Greek government was on the road to fiscal disaster because of the imbalance between its tax revenue and its payout in the form of government salaries, pensions and other benefits. It's a matter of math,and where the money was going was well-understood the entire time.
Once again, I point out a simple mathematical fact. Wipe out the entire debt owed to banks and investors and Greece still can't pay the bills. It has simply promised people things that the Greek economy can't deliver on. The only reason they got away with it this long is that they put the tab on a credit card. Blaming bankers won't change that fact. They are out of the equation.
Sounds like parity is part of the problem.
Hhmmm - where have I heard of that concept before?
They have had 2 years, why an additional 3? Over 50% of the people work in make work phony public jobs. Only a fool in Greece pays taxes. Its a corrupt immoral socialistic country where everyone has their hand out. Greece is the blueprint for the failures of socialism. 22% of Swedes are on welfare, 26% of Germans. Realistically welfare should be no more than 2-3% of a population. Socialism breeds dishonesty and deceit.
Greece has been made a scapegoat for an economic disaster caused by corrupt bankers and politicians. Moreover, where do you get these numbers from?
The unemployment rate in Sweden is 7.3%
7.3% of the labour force - Seasonally adjusted data - Mar 2012 Source: Eurostat
The unemployment rate in Germany is 5.6%
5.6% of the labour force - Seasonally adjusted data - Mar 2012 Source: Eurostat
Corrupt bankers have nothing to do with Greece's problems. The Greek government spent itself bankrupt and cooked the books for decades to hide it, plain and simple. The only problem with bankers is that they've refused to lend still more money, and who can blame them? They've already lost most of what they already lent in the debt restructuring, so they and their depositors are out of luck. If the accusation is that bankers were somehow immoral for lending the money to Greece in the first place, that's been solved. They won't be doing it any time soon. But more generally, if they had refused, wouldn't there also have been lots of righteous indignation at bankers who wouldn't invest in a country's future? The governments want it both ways -- lend me the money when I want it, but it's your fault when I get in debt over my head.
The politicians were corrupt alright -- they made promises about benefits and public sector employment they couldn't possibly keep, and that they knew would bankrupt the country eventually, and they did it anyway.
Greece has only two options: learn to live on the revenue that's actually coming in, or become a permanent welfare state dependent upon foreign handouts to survive -- assuming someone like the Chinese are willing to take on that role. No amount of pointing fingers at bankers will change that.
As far as I'm concerned, the fact that Greece wasn't doing a good job in managing its finances, wasn't exactly a secret .... so if Greece defaults, the banks who suffer should not be bailed out by European tax payers (they knowingly took a reckless risk, and simply stated, taxpayers should not subsidize reckless risk taking).
Moreover, Greece can simply default (which would be its most prudent course, I mean, it's pretty much inevitable anyway). Then they could start fresh with a "participatory democracy" (with transparent public institutions). When they export goods and services, they get good currency in return (dollars, Euro, yen, etc.), and maybe they can set up a system where they use those foreign dollars to purchase the things they absolutely need to import, which would give them much more flexibility to structure a new internal currency system (or even an entirely new way of quantifying value).
This just kills me. Greece doesnt export anything. Thats the entire problem.
Right, but part of the reason for that is they have an overvalued currency (relative to the value of, broadly speaking, their economic activity), ergo, the wealth shift from countries where the Euro is worth vastly more than their former currency was (and what an independent currency, if they had one, would be worth today), to countries where the opposite occurred.
That isnt the reason at all. The Greek economy is unproductive. Capital and productivity are stunted by the massive social collapse that collectivism always causes.
I'm certainly not saying that state socialism can produce good results in all cases (but the same is true for state capitalism). That's the problem with any top down system, it's only as good as the people who run it, and never as good as a society ran by the people themselves. Really, the main difference between the way I think and the way conservatives think, is I recognize private power can become just as harmful to a society as state power. The way I see it is ... programs like social security, are exactly the sort of thing a government should be doing (I mean, if it's not doing things for the people, then why would rational people want it, why would we even need it).
I absolutely agree that the banks and investors should not be bailed out. Bail-outs create the private-gain-public-loss moral hazard problem. When people know they're gambling with their own money, they're much more careful.
And you're right, painful though it is, default is probably the best of some very bad options. Then they could start afresh. But they'd still have terrible problems -- if they default, they're instantly on a pay-as-you-go budget, and they're nowhere close to the break-even point on income versus expenditures. No matter how you slice it, the Greek government will have to cut back drastically on spending or drastically inflate the currency -- or both -- to make ends meet, and that means a whole lot of pain for the average Greek.
They have, however, taken the first vital step. They have voted out the political parties that are responsible for this fiasco. Hopefully they will have the good sense to keep them out.
It's a complicated situation, and I don't really think there's a play book for this sort of thing. It's conceivable that some very innovative steps might be able to alleviate some of the pain, but of course what does Greece manufacture that they can export? If they don't have a robust export sector, without a viable currency, it will be very difficult for them to afford needed imports (like oil).
Really, Greece needs more than just a bailout package, they need a mini-Marshal plan (which doesn't appear to be forthcoming). They could roll the dice on a more far reaching idea (and they'll probably have to), like an anarchist society (and as long as they have a viable agricultural sector, they can find a way to make anarchism work). But without that degree of uber-solidarity among its population, they're in for some really tough times.
Of course if it looks like anarchism has a real chance in Greece ... I bet the establishment in Europe will "mysteriously" become much more Greek friendly :)
The bailouts are only delaying the inevitable. Some hard choices have to be made, and the bailouts just kick the can down the road a few months. There's no playbook, but there are certainly precedents -- Germany after WWI, the Argentine default in the in the early 2000's, Zimbabwe more recently. They were all pretty painful.
Their best bet might be the tourism industry. Leave the Euro zone, default on all their debts, and issue near-worthless currency. That leaves everyone with a near-barter economy for a while, which will be chaotic and painful, but people adjust to that pretty rapidly. But then, Greece -- already, a beautiful, historic and conveniently located destination -- instantly becomes a very, very cheap place to vacation, what with drachmas going at 2 or 3 hundred to the dollar. There'd be a rush of tourists very quickly, bringing in lots of dollars and yuan and euros to buy up ouzo and feta cheese and what all; and tourists are used to getting soaked on hotel taxes landing fees and visas and everything else, so the government's finances start to improve rapidly.
I don't know that anarchism will get a shot in Greece, but the far left certainly looks like its going to get a shot. That should be interesting.
Look, honestly, I'd like to see Greece do whatever will spare it the most pain, and in a situation like this, you tend to get a lot of infighting (which is obviously the last thing Greece needs). The anarchist philosophy is built around solidarity (and shared solutions), and when times get tough, solidarity becomes exponentially more important. So if somehow anarchists gain a decent following, then its ideas get included in the menu of choices (and that's all anarchists ask for, since to coercively shove their ideas down peoples throats, would itself be a violation of its principles).
I got to thinking about what you said after my last post. Really radical solutions never take hold in large countries (absent a violent takeover) because the population is too diverse. You can't get the social consensus you need. The places where there's an opportunity are relatively small homogenous groups and societies -- there's a strong sense of group identity and shared ideals and culture, so you can get a consensus to try something new. Places like Denmark and Norway are maybe the closest examples in recent western experience.
It occurred to me that maybe Greece is a candidate too. It's small enough, and relatively homogenous culturally, and people are maybe ready to try something radical. Certainly, something radical is needed, and they're going to be pretty much starting from scratch anyway, so why not try something really different? So maybe you're right. The question's going to be can they get past the infighting and the desire for some short-term bandaid, and build some long-term consensus around a new approach? If they could swing it, it might indeed indeed make the European establishment a bit nervous -- there are a few other countries in the EU that might be ripe for such a solution as well.
Not all that radical for Greece (they are the home of direct democracy).
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I suspect part of the reason they are withdrawing their money from the banks is also to protest against big banking and the influence it has in the austerity measures that are being imposed on Greece.
It's not a bad strategy actually.
We can learn a lot from the protest going on all over the world. Some of the actions in some of them I can't condone of course. Some tended to get too disorderly. We must always remain above that sort of mob mentality and stress we protest legally and peacefully or else everything we have strived for is undone.
That having been said. We can learn a lot from the various anti-globalization movements and protest and learn not to repeat their mistakes. The Red Shirt movement in Thailand was a very intersting phenomena I think they took it too far and there was over reaction on both sides which I strongly condemn. But they had some interesting ideas none the less. They are certainly interesting to read about, if nothing else to learn not to repeat their mistakes.