The next steps in the Greek crisis

7th July 2015

Invesco’s John Greenwood looks at what the future holds for Greece and how the rest of the eurozone will react to the outcome of the referendum.­..

On 5 July the Greek people had to choose in a referendum between Scylla and Charybdis: voting “Yes” if they were willing to accept the demands of their creditors and “No” if they rejected those proposals.

The outcome was that 61.3% voted “No” and 38.7% voted “Yes” in a turnout of 62.5% (6.16 million people out of 9.86 million registered voters).

The Greek Finance Minister, Yanis Varoufakis, had promised that he would resign if the Yes vote won. With the victory of the No vote he has nevertheless resigned.

Given that his presence and confrontational attitude had exacerbated relations between Greece and its creditors, his resignation serves to facilitate the start of renewed negotiations between Syriza and the leadership of the hated troika.

However, even if talks resume within a short period, there is no assurance of a long term, sustainable compromise being reached between the two seemingly irreconcilable positions. The problem is that both sides are living with convenient fictions that they dare not acknowledge.

On the Greek side the facts are that the government had borrowed over €356 billion by 2011, or 171% of GDP. After a bail-out in 2012 the public debt was reduced to €305 billion, or 157% of GDP.

However, since then, public debt has risen and the nominal GDP has declined further. Today Greek government debt is estimated at €320 billion or 180% of GDP in 2015.

This is predominantly held by the EU, the ECB and the IMF (the “troika”).

While the exposure of private creditors to Greek banks and companies has been drastically reduced from €206 billion in 2012 to €21 billion in April 2015, government indebtedness has increased, and is not sustainable at current levels.

In face of this insurmountable debt load, the Greek government has been reluctant to adopt the recommended reforms and austerity programmes advocated by the country’s creditors.

The reality is, then, that the Greek state is insolvent, and needs further large-scale debt relief following the bail-out of 2012. But even then, the economic reforms and improvements in governance have been so minimal that few investors would count on Greece being able to grow sustainably in the future – at least within the eurozone.

As yet the Greek government does not dare propose the return to an independent Greek national currency, or drachma.

On the creditors’ side, there is an almost universal refusal to acknowledge that the troika’s loans to Greece are essentially in default.

Throughout the existence of the eurozone, the mantra of the leadership in Brussels, Frankfurt or Berlin has been that budgetary and debt rules will be followed, defaults will not occur, and that the monetary union is “irreversible”.

Allowing serial disobedience of the rules, acknowledging bail-outs and defaults, or taking write-offs from sovereign entities within the eurozone would inevitably undermine the solidity of the monetary union, threatening further defections.

Therefore the policy has been to extend more loans and pretend that any lapses are temporary and will soon be corrected – a sovereign-level version of “extend and pretend”.

In the wake of the referendum results, we will probably see an enormous effort by both sides over the next few weeks to negotiate an agreement that is more lenient to the Greek people, but somehow maintains the fiction that the Greek government’s debt is still in good standing.

The aim will be to ensure that the troika has not allowed the principle of “no defaults and no bail-outs” to be violated.

Yet markets are beginning to perceive that the facts are starting to undermine these convenient fictions.


18 thoughts on “The next steps in the Greek crisis”

  1. David Lilley says:

    Today’s Euro-group meeting, first delayed and then pointless as the Greek finance minister brought no new proposals with him. The Greeks responded by saying their previous 47 pages of proposals were still live. But these were laughed out of the room on their initial presentation.
    As with every Euro-group meeting 19 finance ministers have to give up their day job and catch a plane to Brussels. Then the 19 PMs must do the same.
    The big economic argument of the times is big state v smaller state. Capitalism was truncated by state interventionism even before Marx wrote about it. It was replaced by the mixed economy, part state and part private. The left want a big state and the centre want a smaller state. The right no longer exist. The basic reference point of the bigger/smaller argument is that it is only the private sector that is wealth creating and therefore if its size is reduced the money available for health, education, state pensions, defence etc. is reduced.
    Despite five years of attempting to reform Greece they still have a large state with 50% of workers employed by the state, 50% of young people going to university (entering the workplace at 22 years old only to leave 33 years later when they reach retirement age) and 22% of the economy hidden from the tax-man via the black-market.
    The latest 47 page Greek proposals were about taxing the private sector, the wealth creating sector.
    Since the news that the new Greek finance minister turned up with only his begging bowl and no new proposals there has been a big change in news reporting. Instead of towing the line that referendums are democracy in action and the financiers should pay attention to the democratic call for less austerity we are now hearing for the first time what the other members of the EZ think. German MEP Elmar Brok gave an excellent presentation of the place we are in at the moment on Sky news. Some of the other 18 have had similar debt, received troika bailouts, reformed and now have healthy growth. Some have much lower wealth than Greece and some have smaller pensions than Greece. Why should they contribute yet more money to Greece?
    With this about turn change in reporting the “NO” voters and their supporters abroad may realise that the money lenders are in fact the 300m citizens of the other 18 members of the EZ and that if they were given a referendum tomorrow they might vote 100% to refuse any further charity to Greece.

    1. Jive Bunny says:

      “Capitalism was truncated by state interventionism even before Marx wrote about it” Yes BECAUSE CAPITALISTS ASKED FOR IT!!

      The first UK Government intervention was very reluctantly made when CAPITALISTS whom, whilst happy to rip others off were very unhappy at being ripped off themselves being sold short measures as weights and measures were unregulated being left to private foundries to decide the “quality and accuracy” of the weights and measures they produced.

      They lobbied the Government to produce accepted weights and measures from a Royal Foundry that all would accept as a regulated standard backed by the rule of law in th eevent of a dispute.

      The Government responded “Laissez-faire” whereupon the CAPITALISTS fell into a rage threatening to overthrow the Government if it didn’t comply with their demands. Democracy prevailed, a Royal Foundry was established for the production of weights and measures and so the first Government Department was established – Weights and Measures all due to CAPITALIST demands, so stop moaning David about those things that Capitalists demand!!

      1. David Lilley says:

        Dear Jive,
        On the subject of weights and measures:
        Archimedes won the prize for determining which gold coins were forged and which were genuine.
        Even in the middle ages we had weights and measures. The “baker’s dozen”, 13 rather than 12, was due to the fear of massive state punishment if you were found guilty of miss-selling.
        Newton sorted out the Royal Mint at a time when one in four coins was forged.
        1 in 36 £ coins is a forgery today.
        But what has all this got to do with a mixed economy replacing capitalism?

        1. Jive Bunny says:

          Dear David,
          We need to stick with the UK as I said above “…private foundries to decide the “quality and accuracy” of the weights and measures they produced”. I took it as read that you understood I was referring to the Middle Ages.

          However if you want some more details here you are:

          A large number of different measures were used prior to and during the middle ages, all invented BY CAPITALISTS and there was no body to enforce the accuracy of the measures. Consequently traders took commercial advantage (cheated) of the differences between the measures and the non uniformity of measures and weights produced by different PRIVATE FOUNDRIES. I have no idea why, but the bakers of all the traders got mightily peed off about it all and they held great power as bread was considered the life blood of the nation, so when they complained the Government/Royalty listened.

          Initially “Laissez – faire” was the response to their complaints but when they threatened to stop making bread (which would quickly lead to riots and the destruction of the Status Quo) they were listened to seriously.

          The bakers dozen was implemented in The assize of Bread and Ale statute of the 13th century AT THE REQUEST OF THE BAKERS. The main provisions of the Act established the weight relationship between a penny and wheat corns, 32 of which should weigh the same as a penny which was then extrapolated up and converted across into gallons of wine. The bakers wanted the regulation as they were fed up with millers shorting them on measures of wheat which made it difficult for them to calculate the price to charge per loaf of bread. The cutting off of hands (which only happened in the extreme cases) was requested by THE BAKERS as a punishment applicable solely to millers but as with all things the law applied to everyone and the bakers failed to get all their own selfish way.

          Now, “what has all this got to do with a mixed economy replacing capitalism?

          Thereafter the “Weights and Measures Department” was established consisting of a Royal Foundry replacing the private foundries that did such work, although of course they did other work but nevertheless some would have gone out of business whilst others shrunk to make way in “the market” for the Royal Foundry’s contribution to the market and there you have it! The beginnings of a mixed economy whereby the “Public Sector” (The Royal Foundry) began producing and supplying things in the economy AT THE BAKERS REQUEST. Thereafter, when businesses saw the advantage of having a reliable system backed by law they requested all manner of other changes which increased the role of the Public Sector in what had already become a mixed economy in the 13th century.

          THAT IS WHAT THIS HAS TO DO WITH A MIXED ECONOMY REPLACING CAPITALISM. If you want to blame someone for what you consider to be a “bad thing”, namely a mixed economy then you need to blame Capitalists.

          1. David Lilley says:

            Good comments.
            Thank you for the correction. I thought state interventionism kicked off with banning the sending six year olds up chimneys. But you give a detailed explanation of how it started much earlier.
            I don’t do history. History is bunk (sorry Michael Gove). Learning history is generically “learning stuff” and why learn stuff when you can learn skills and concepts. You can learn stuff with a few clicks on your smart phone but please only learn stuff on a “need to know basis”. You can get through life not knowing that the capital of France is Paris.
            I read your informative contribution on Royal Foundries but I know that I am only human and fallible so stuff goes in one ear and out of the other. I will get stuff on a need to know basis by visiting Wikipedia..
            Where did you get your contempt of entrepreneurs? They sell their goods and services in a competitive environment. The best goods and service providers survive and the worst go bankrupt. The proletariat is in the same business, selling his services, his wage is his profit. He too can improve his game, skill-up and increase his profit. Progressive taxation donated £66,000 to his education whilst handicapping your hated capitalist.
            What are you missing?

          2. Jive Bunny says:

            David, it is more what you are missing. Clearly you hate Socialism and Marxism (often confused with communism which in fact has notrhing whatsoever in common with Marxism and socialism).

            You and everyone else like you, of whom there are many, decide capitalism is best despite overwhelming evidence that it is not best for the majority (although it ids for the top 10%) because you have an emotional attachment to capitalism (and the dream that one day, if you have the right idea you won’t have to work any more and will have “loadsamoney”) and an emotional reaction against Marxism etc which guarantees every one will have to work unless or until they are no longer fit to do so.

            For my part Marxism, Socialism, Capitalism are merely different distribution and rationing methods for the population. Marxism according to need, capitalism according to ability to pay, I have no emotional attachment or reaction to either, preferring to follow pragmatic logic.

            Capitalism, in it’s purest form is “law of the jungle” the most capable devour the less capable and much suffering is caused in the process.

            A drug dealer is an entrepreneur – he buys his unregulated drugs from his supplier with no knowledge of what they have been cut down with or the purity and sells them on to his addict customers. If the drugs have been cut down with battery acid or left very pure leading to painful deaths for his customers he doesn’t care as long as he makes lots of money. If other dealers try to get onto his patch he either beats them up, attacks them with an axe cutting parts of their bodies off or stabs or shoots them possibly leading to their death – capitalism survival of the fittest. His only purpose is to make as much money as possible for doing as little as possible and there you have capitalism in a nutshell.

            Your”competition theory falls apart here as survival of the fittest dictates that monopolies will emerge as “the fittest” in mainstraem economic activities being generally the most intelligent and ruthless (there’s the killer instinct again) wil be the most successful. Having achieved dominance they will then put prices where they want them to ensure they don’t have to work any more – Laziness. This is part of the row betyween BT and Sky now – that BT is in too dominant a position and is effectively a market maker setting standards/prices for the rest of the industry whilst Sky struggles to obtain the volumes required to be able to drop prices to competitive rates, Sky is probably lying as is BT, each wants to use OFCOM as weapon against the other to obtain an advantage.

            I agree the prole attempts to operate as a capitalist but is ham strung by the fact that employers in an area look at each others prices paid for labour and enter into an unspoken agreement to keep wage levels low. No doubt you also hate the Unions which are a natural expression of capitalism by the proles as they seek to gain a better deal for themselves via collective bargaining – Capitalists certainly hate them where we arrive again at the situation that capitalists themselves don’t embrace all aspects of capitalism – merely those aspects that suit their selfish purposes, of course, proles are the same too! The only time this can be broken from an employee perspective is if the employee has rare in demand skills.

            The average prole can only skill up to his potential capacity. If he isn’t very bright then he’s stuck washing up dishes for minimum wage and he’s vulnerable. Capitalism ignores his and his family’s financial problems and ploughs on leaving him and his family with a poor quality life style.

            Interesting that you talk of the worst providers going bankrupt – that can take a very very long time and “the best” having achieved market dominance will sit back and put prices up to profiteer from their position.

            If they are in an industry with high barriers to entry they’re untouchable eg the British Oxygen Company (which never did go out of business but were taken over by Linde group).

            They had a monopoly supply of liquid oxygen in the UK from the early 1900’s to the 1970’s – AN ENTIRE LIFETIME!! charging what they liked for it.

            An attempt was made to break that monopoly by American Air Products which, whilst successful in other noble gas areas failed with oxygen. Indeed the attempt would have been doomed to failure had it not been for your hated State intervention as prices of liquid oxygen would have remained artificially high but the Monopolies Commission had a word with BOC in the late 50’s telling them not to sell liquid oxygen below break even price (known as “dumping”) in local areas where American Air Products had established plants until the new competitor had achieved significant market share.

            Without your hated State intervention prices would have temporarily dropped in local areas until the new competitor was driven out of business and then would have been increased to ever higher levels in the absence of competition.

            This all sounds pretty academic and removed from every day life but those high prices charged for liquid oxygen used in a lot of industrial/manufacturing processes would be reflected in prices paid by the not very bright prole washer upper for his veneered furniture, vinyl flooring and plastic containers to name a few.

            In fact David I believe in heavily regulated capitalism where minimum quality and safety standards are rigorously enforced by the State and no supplier is allowed to gain a dominant market share thereby ensuring TRUE COMPETITION, unless economies of scale dictate that goods can be supplied cheaper at the same profit ratio if the organisation is bigger, in which case said organisation would have to open it’s books to State regulators whose job it would be to ensure profiteering isn’t occurring.

            You will no doubt be even more horrified to hear that I believe everyone should be paid the same pay no matter their job because currently we have immense distortions in the economy as people, some with science degrees “follow the money” usually ending up in financial services (which simply produces “money” without any tangible “goods” for you to consume i.e. an inflationary activity) when they could be doing a lot more good in a more lowly paid scientific position developing a new cure for an illness or a new drug to be applied to crops to increase their yield/size.

            Examples of this are Neil Woodford and Antony Bolton, both investment gurus (until Bolton met his nemesis in China) yet the former possessed a degree in agriculture and the latter a degree in engineering. I assume they studied at University the subjects they were interested in, giving them up as career paths in favour of the more lucrative Financial Services path. If you work in an area you are actually interested in rather than being “in it for the money” you automatically put more effort in and will succeed more. In the absence of monetary inducement, people will work in those areas that interest them, putting more effort in for the same pay, achieving more success in their chosen field and humanity as a whole makes more progress.

            Of course your standard capitalist, motivated by greed and laziness would run a mile form such a situation.

          3. David Lilley says:

            You are well informed.
            Getting back to Greece I consider today’s news to be good for Greece and the other 18 members of the EZ. We are now using the tried and tested IMF blueprint. We will not even discuss a further bailout until you put the conditionality into law by Wednesday.
            I thought that you and I had agreed that we have a mixed economy and such economies only get into trouble when the public sector gets so big that the private wealth generating sector cannot support it. Then you have to borrow to make up the difference between income and expenditure and then you get a Greek tragedy.

          4. Jive Bunny says:

            David, I fail to see anything “good” for Greece in no debt forgiveness, but extra debt of circa 70 – 74 billion Euro which should then manage to shove Greece’s debt to GDP ration up to around 180 – 200% when it was already struggling at 150%.

            Moreover I hope the Greek Parliament throws this worse proposal than the one a week ago which the people threw out, default and exit the EZ refusing to repay a cent as this new deal will do as much long term damage to Greece as an exit, at least then they would be masters of their own destiny.

          5. David Lilley says:

            What has just happened is that the 18 democratically elected leaders of the other 18 EZ states have decided that their 300m citizens have already given about 1,000 Euro apiece to provide about 24,000 Euro per Greek and that should have been enough. But the Greeks still have a big public sector that the wealth generating private sector cannot support. Some of those other EZ states are poorer than Greece, some have smaller pensions and Eire, Portugal and Spain also received troika help but reformed and are now growing. Yet they are still prepared to give a third bailout to Greece but this time they insist that reform happens.

          6. Jive Bunny says:

            David, I am not defending Greek failure to implement reform. I am saying the “program” will make things worse for Greece and withtheir hands tied they have no hope of getting out form under their prioblems, thatuis why they need to take control and walk away.

            Regards democracy the democratic Greek referendum last week rejected a proposal that was better than this. Tspiras should nowstep down if he feels unable to carry out the will of the Greek people. I have been reading of street riots already in Greece at the new proposal which Tspiras is puttingbefore theGrreek as he has nop deemocratic mandate to put amything before the Greek Parliament that is the same/worse than theoriginal proposal rejected by a democratic referendum.

            You think this is all Greece’s fault and Greece certainly has it’s share of the blame to shoulder but who allowed Greece in originally? Who should have done due diligence checks before allowing them in? Who should continue the checks on all member States, initially helping them but when they abuse that help remonstrate them eventually leading to expulsion? Why did the Greek crisis come as a shock to the EZ in 2010?

            The EC and ECB have their share of blame to take. What will happen to the Euro if Greece leaves? How will German exports fair then? Perhaps it’s cheaper to keep Greece in and instigate a realistic bail out on condition unelected Technocrats take over the economy until Debt/GDP ratio is down to 80% (about 20 years).

            Why doesn’t the EZ recognize that monetary Union entails shared responsibility of all debts of all member states like the USA?

            There are many factors to consider here….

          7. David Lilley says:


            The IMF estimated that the primary Greek economy (the economy less debt repayments) would grow by 2.5% this year. This was excellent news for the Greek people. How does the song go “growth is all you need”?

            The Greek future was improving just like Eire, Portugal and Spain. But after seven months of communist rule the IMF have downgraded Greek growth in 2015 to zero even before the referendum and its consequences (two weeks of bank closure, an employer cannot pay his staff when he can only withdraw 60 Euro, a shop cannot buy stock with 60 Euro). This is what Azad Zangana meant by a self imposed depression.
            There is a lot of talk that the bailout funds went to the banks and not the people. Olivier Blanchard refutes this mischief in his IMF blog. The Greek government chose to swap high interest rate private sector loans for low interest rate troika loans thus halving interest costs to the benefit of all Greeks. Saving 6b Euro pa or 500 Euro per person pa..
            Banks don’t have any money. They only manage saver and lender accounts. When their investment banking arm buys government debt it is done with pension funds. Pension savers’ funds. When the Greeks impose a 50% haircut on private sector lenders it is pension savers who suffer. It is mischief to say its OK to hit greedy banks. I haven’t used the word greed since about 11.
            We don’t do emotive. We had a relationship with the post industrial revolution capitalists. They certainly made us all richer via Smith’s “invisible hand”. Parliamentary democracy was gaining power and there was a step change in what the state and the populous took from the wealth generators. We ended up with a mixed economy although the economy proper would always be limited to the wealth generating private sector.
            The one and only economic debate in our mixed economy age is “how big should the state/public sector be?” The pyramidal society gives all the power to the masses because they have the biggest share of the vote. The “vulgar” democrat wants the tyranny of the majority and the “vulgar” Marxist considers that he shouldn’t have to work if only wealth were evenly distributed. Neither make good citizens.
            The answer to the important question “how big the state?” is simple. The state can and does tax the private sector, including the middle class wage earner, until the pips squeak. But the state should never borrow. If it cannot make ends meet by taxing the private sector then it certainly cannot make ends meet with the addition of debt servicing costs. State borrowing is the road to ruin.
            Greece ran up a national debt of 120% of GDP and had a deficit of 15% of GDP before the bailouts from its kind neighbours. The average age in old Europe exceeded 60 for 50% of the population some years ago. We can therefore assume that more than half of Greeks are living on pension as they retired at 55. That’s 50% of the entire population making no contribution to wealth creation. On top of this 50% of young people go to university, don’t enter the workplace until they are 22 and can already see retirement in their medium term horizon. A Greek born today can expect to live to 100 and expects to get away with only working 1/3 of their lifetime. Wow!
            I love our mixed economy and our parliamentary democracy. Their greatest contributions came from Smith and Mill. Who could possibly give us more than Mill’s “On Liberty”? You can to anything you like, you have total sovereignty, total freedom, provided that you don’t break the law and interfere with the freedom of others.
            Referendums have no place in parliamentary democracy which is owned by debate and scrutiny.

          8. Jive Bunny says:


            Dealing with your many issues and
            errors in general order but starting with one of your later points first in which you speak of “vulgar democracy”, an emotive phrase
            if ever I’ve heard one. I prefer the correct term of Direct Democracy. Given that you feel the majority constitute a “tyranny” I guess you are in disagreement with Union ballots on industrial action? Adopting a “ballot on industrial action approach” invites the ”tyranny of the majority” of which you speak. Surely, given your statements that referenda have no place in Parliamentary democracy you are all in favour of allowing the elected Union
            Officials (equivalent to MP’s) to decide if when and how industrial action will be taken and the membership will be commanded to take it
            by the Union Executive, just like it was in the 60’s and 70’s??

            On doing anything you like as long as
            you don’t break the law, well, I’m afraid laws get changed and civil freedom’s are curtailed , often without the electorate’s permission.
            In a Direct Democracy laws and freedoms would still be changed but with the majority vote of the electorate. The Greeks broke no law and affected no one’s freedom in holding a referendum on the bail out conditions, rather, they were empowered (for a short while anyway) to affect their destiny.

            The IMF incorrectly estimated Greece’s
            GDP at 2.5% pa last year at the same time I estimated zero growth.
            The IMF’s latest revisions are simply playing catch up with circumstances in existence last year (and indeed since the debacle
            known as the Greek bailout commenced in 2010) – long before Syriza came to power.

            The lag between policy action and
            economic effects, whilst argued about in economics, are universally understood by all except you it seems, to be between 6 months and 2 years!!

            Syriza were elected on 25/01/15 – a little under 6 months ago, not 7 months as you imply. Any economic changes initiated by a Government take at least 6 months before the
            effects are felt, therefore the economic circumstances in Greece at the moment (excluding the ECB’s actions on Emergency Liquidity
            Assistance [ELA] more of which later) is directly attributable to the preceding New Democracy Party and has nothing whatsoever to do with Syriza!

            The bank closures to which you refer
            were caused by the ECB’s refusal to extend any further ELA to Greece as it rejected the previous 3rd bailout offer. The ECB was under no requirement to refuse extensions to ELA but chose to do so as it became concerned about Greece’s ability to repay. Quite why it
            suddenly became concerned now and not in the preceding 5 years of failure is beyond me!! Whose fault was it that the ELA was suspended?
            That lies somewhere between Syriza, the Greek people and the ECB.

            I wonder what you know about the definition of a depression in economics when you say that a 2 week bank closure with capital controls attached amounts to a self imposed

            Please educate yourself and look at
            this link –
            as you will see an depression has to be a SEVERE RECESSION LASTING AT
            LEAST 2 YEARS – NOT 2 WEEKS!! In fact a 2 week fall in economic output would not even qualify as a recession.

            Olivier Blanchard can refute all he wants, the facts are the Greek Government did not CHOOSE to swap private sector loans for Troika loans, it was excluded from private
            money markets as no – one would buy it’s bonds so it had no choice.
            You have completely missed the point on the destination of bail out funds. Bail out funds have been used to purchase secondary Greek debt from banks (mainly French and German) in addition to new Greek debt issue since 2010. So, bail out funds have most definitely gone to the French and German banks that had exposure to Greek Sovereign debt .

            You need to read up on fractional
            reserve banking. Banks most certainly have money, that is, they receive a deposit of 100 Euro and in a fractional reserve system
            requiring a 5% reserve of deposits be maintained, create a further 2000 Euro lending it out or gambling it via their dealing desks on whatever takes their fancy. Alternatively, they can also obtain more
            money from the Central Bank at very low rates provided they post what the Central Bank considers appropriate collateral. Profits made
            are theirs to keep and unfortunately in today’s upside down world they seem to think their losses are the taxpayers to keep!! That
            would be my definition of “GREEDY” which I still use when appropriate as I don’t believe in putting unrealistic constraints on myself.

            I have told you before about the mixed
            economy – it existed long before the industrial revolution with the Public sector growing in response to demands for it’s growth from

            Where does it state in Das Kapital that
            you shouldn’t have to work if wealth is evenly distributed? Allow me to help you here David, you need to check this –
            this –
            and this

            Again I find myself wondering at your
            command of economics when you say the State should never borrow.
            Check your history David, the 1st Great Depression of the 20’s and
            30’s went on and on and on from the late 20’s to the late 30’s (globally although the US began recovery in 1934)whilst global Governments maintained, or tried to maintain more or less balanced budgets, then came Roosevelt’s “New Deal”in 1933 where
            he started borrowing on great scale to finance his New Deal objectives (albeit he maintained 2 budgets one of which was “balanced” and he showed to the public whilst the other was very unbalanced with growing liabilities, debt, on it that he didn’t show to the public) and the US economy began to recover in 1934.
            dragging the rest of the World along with it.

            Where or where do you think we would be
            now if in 2008/9 the Chinese Government decided to maintain a balanced budget instead of borrowing and spending massively on infrastructure, providing demand for commodities and engineering skills around the World thereby driving other country’s economy’s forward – all through STATE BORROWING. There is nothing wrong with
            borrowing in recessions/depressions as long as it is repaid in the good times.

            I can’t be bothered with your dodgy
            demographic assumptions that Greece must mirror “old Europe” in it’s age distribution so half of Greeks are retired!!! Although I’d
            like to see your information source that the average age in “old Europe” exceeded 60 for 50% of the population some years ago. By
            the way, exactly how long ago is “some years ago”? What is “old Europe”? and what is New Europe? Why should “old Europe” be representative of Greece?

            However, I digress, my point is Greek
            retirement age –
            – nuff said?

            As you can see David there are so many
            errors, omissions, fuzzy logic, false assumptions and failures to understand basic economic concepts in your piece I wouldn’t bother replying to this if I were you.

          9. David Lilley says:


            1. It is true that the retirement age has been increasing in Greece since 2012 but these are the facts in December 2014.

            “In the public sector, 7.91% of pensioners retire between the ages of 26 and 50, 23.64% between 51 and 55, and 43.53% between 56 and 61. In IKA, 4.44% of pensioners retire between the ages of 26 and 50, 12.83% retire between 51 and 55, and 58.61% retire between 56 and 61. Meanwhile, in the so-called healthy funds, 91.6% of people retire before the national retirement age limit,” Vroutsis said. – See more at:

            2. Mill speaks of “vulgar” democracy in On Liberty and Popper chooses to retain the phrase in the Open Society. Mill points out the tyranny of the majority over minorities can be the worst form of tyranny. I therefore use the term “vulgar” as the text book technical term to describe misunderstood understandings of socio-economic concepts. It appears still to be the best word.

            3. “Old Europe” was the term used by the US in the run up to the second Gulf War. The Europe prior to the Iron Curtain coming down.

            4. I’m mistaken in my recollection of the 50% over 60 that I incorrectly remembered from a John Redwood article from about 12 years ago. John was arguing that the working population in the EU was in decline and may have said 50% over 60 by a certain year.

            5. Olivier Blanchard doesn’t tell fibs and even John Greenwood’s article upon which we are commenting states “While the exposure of private creditors to Greek banks and companies has been drastically reduced from €206 billion in 2012 to €21 billion in April 2015 – See more at:


            6. Banks have no money. Yes, they pass money from savers to lenders and employ fractional reserve lending for which we are all grateful. We had to keep this service alive when individuals and companies were defaulting on their loans and we will get the taxpayer’s money back. Bank fines and levies are ultimately paid by its customers.

            7. I am misquoting Azad Zangana. He said ” a self imposed recession” and not depression. But I wished to use a stronger term more appropriate to what follows from now on. We only introduced the two quarters definition of a recession because we were tired of governments claiming there was no economic problem when there was.
            8. I have no problem with our servants borrowing when it is necessary such as in times of war. I consider my guidance as to the optimum size of the state to be simple and useful.
            Is this going to be the longest discussion ever on Mindfulmoney?

          10. Jive Bunny says:

            David – “Is this going to be the longest discussion ever on Mindfulmoney?”

            It looks like it:

            1. Viroutsis’ “facts” have been split into “public Sector” (which we don’t know how big that Public Sector is in order to weight it in final numbers) something called “IKA” which I have no idea what that is and “healthy funds”.. Whatever is he talking about? Public Sector employees? Private Sector employees? Public Sector Pension Funds? Private Sector employee Pension Funds ? Private Sector Self employed Pension Funds? His facts are as much use as a chocolate tea pot! I prefer Tradingeconomics’ up to date numbers covering all groups within the male population, although I would prefer to see the numbers for women too to see more accuracy.

            2. I understand you may use the term “vulgar” in it’s correct grammatical sense as Mill meant it but this is a public forum and most will view the word in it’s every day meaning – poor taste and lacking refinement. On an aside I find it peculiar that you quote a semi Marxist whom believes in workers co – operatives as a better solution than capitalism

            3. Thank you.

            5. OK then we’ll say Olivier Blanchard stretches the truth. In your post on 14/07/15 you said that Greek Government swapped private sector loans for Troika loans which is what I replied to – i.e. Greek Sovereign debt from the private sector being swapped for Troika loans, although that had nothing to do with Greenwood’s comments about private creditors’ exposure to private Greek companies and banks, so I don’t know why you are quoting him, as it was you who introduced the new thread of Greek Government debt being swapped from private sector to Troika (which it was because, as I said before private sector refused to roll the debt and the Greek Government had no choice).

            6. Banks DO have money, indeed, they create it out of thin air, that’s the whole point of Fractional Reserve Banking. I know you’re going to struggle with this David but when a depositor places money in the bank, that money becomes the bank’s money and it is under no obligation to return all of it to the depositor. An agreement has been made between banks and Governments that the Banks will return all the money in order to prevent an economic collapse when confidence fails. This agreement is backed up by deposit guarantees offered by the Government in the event of a Bank default. The fact that Depositor’s money IS THE BANK’s was amply demonstrated in the Cypriot bail in of 2013. If you still believe Banks “have no money” how do you explain their declared profit? They can’t make a profit if they have no money to make a profit on!!!

          11. Jive Bunny says:

            Oh and |I couldn’t let this go : “Bank fines and levies are ultimately paid by its customers.”

            Therefore no business (car manufacturer, oil company etc) anywhere has any money as when it is fined that fine is indeed paid by it’s customers – c’mon David, think about what you said….

          12. David Lilley says:

            Nice talking to you Jive. I did learn a lot from our discussion. Lets hope everything works our for the Greek people in years rather than decades.

        2. Jive Bunny says:

          And I’m back David, if you read this – you will see that yet again we have capitalists – Sky and BT calling for Public Sector intervention i.e. each wants the other investigated by the Government Regulator OFCOM.

          The very fact that OFCOM exists makes it part of the economy and therefore makes the economy mixed, here we see capitalists only too eager to make use of parts of this mixed economy for their own selfish ends that at other times it suits them to criticise as too much State intervention and the State being too big – TALK ABOUT HYPOCRISY!!!…..

  2. David Lilley says:

    This is what the IMF report dated 26th June 2015 has to say. It is totally at odds with what the BBC and the Greek PM are saying about it. The key words are “a weak reform effort that will weigh on growth and privatization—are leading to substantial new financing needs”.

    “At the last review in May 2014, Greece’s public debt was assessed to be getting back on a path toward sustainability, though it remained highly vulnerable to shocks. By late summer 2014, with interest rates having declined further, it appeared that no further debt relief would have been needed under the November 2012 framework, if the program were to have been implemented as agreed. But significant changes in policies since then—not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatization—are leading to substantial new financing needs. Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable. This conclusion holds whether one examines the stock of debt under the November 2012 framework or switches the focus to debt servicing or gross financing needs. To ensure that debt is sustainable with high probability, Greek policies will need to come back on track but also, at a minimum, the maturities of existing European loans will need to be extended significantly while new European financing to meet financing needs over the coming years will need to be provided on similar concessional terms. But if the package of reforms under consideration is weakened further—in particular, through a further lowering of primary surplus targets and even weaker structural reforms—haircuts on debt will become necessary.”

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