business. They hate the problems that Greece is facing. The 12.7%
budget deficit is the highest in the EU and is not sustainable. Efforts
to cut government expenses have caused a political backlash against PM
Papandreou. The only available solution is to raise taxes and crack
down on tax evaders.
The Shippers are largely untaxed on their global operations. Their
status is ‘protected’ under the constitution. Taxing the shippers would
go a long way toward closing the budget gap. The changes in tax laws
will not come easy. There is no certainty of the outcome. The sense
that I got from these discussions was that there is a short window open
for Greece to come up with a plan to cut its deficit to approximately
9%. I asked for both a ”good” and a “bad” news scenario. Although the
responses to the question I asked are speculation, they have
interesting implications.
"If Greece is able to restructure its tax code and install a
plan to reduce its deficits to 8% of GDP, then China will invest Euro
25 billion in Greek bonds."
The issue of the Chinese investing in Greece was first raised on November 29 by the WSJ.
I think it was one of those well placed rumors. If this were to happen,
it would be of significance. It would establish that China is assuming
a role as some form of 'lender of last resort'. The bilateral trade
conditions that would be attached to a deal of this magnitude would
re-raise the issue of China’s trade hegemony and economic muscle. For
me, the most significant aspect of this is that it would represent yet
another significant diversion of China’s investable funds away from the
US.
If this were to happen, the $40 billion under discussion would not
impact the supply demand equation for US debt. But the direction of
this would be significant. The US desperately needs China to
significantly increase their holdings of US IOU’s in the coming years.
They are under no obligation to do so. What if they were to take a
stance with the US similar to Greece? We would get a headline that
looked like:
Of course we are not going to see a headline like that anytime soon,
but the developments in Greece are a possible first step in that
direction. If China bails out Greece in 2010 it is a game changer from
a number of perspectives.
"If Greece is unable to address its budget deficit the Chinese
will not invest and financial conditions for the country will
deteriorate quickly. One consequence would be that Greece would be
forced to separate from the Euro."
This is not a high probability outcome. However, talk of it would have
a very significant impact on the FX markets. The people who I spoke
with made an interesting observation, "Switzerland
is very much integrated with the EU and the Euro, but they have
maintained their own currency. If Greece had its own currency it could
adjust it to achieve a trade advantage that would address the
fundamental imbalances." (Same argument as "the weak dollar is good
for the USA"). These same people point to the fact that the Swiss
National Bank has been intervening in the currency market to weaken the
Swiss Franc in order to achieve a trade advantage. The thinking is, “If it works for the Swiss, then Greece should do it too!”
Consider where this could go. If there is talk of this happening, it
would raise the same issue for Spain and Italy who are suffering from
their association with they Euro. This could lead in the direction of a
two-tiered Euro. One would be strong. The other weak. The implications
for the dollar would be significant in both the short and long term. It
could be the source of instability as the process unfolds.
The Greece story has already gotten the money moving. It is a story
that could take us in some surprising directions. I got the sense that
there was a short fuse on this. The next three months may put some
powerful forces into play.
Is there anything behind the Chinese/Greece connection? I think so. I
always assume there is something to it when you get statements like the
following. Asked whether Greece is negotiating with China to sell
bonds, a government spokesman said:
"It may be true, and if it is true, we do not want to comment. But even if it isn't true we wouldn't want to comment.”
balenciaga and chloe lv handbag
www.lookhandbag.com
Leo, MS responds surprisingly well to a plant-only diet of beans, vegetables, fruit, and nuts. No dairy, no meat or fish or poultry.
Can be a bit boring at first, but if the pain lessens?
we are talking about a €40bn deficit of which they need to cut it in half to begin with. Getting 20bn would probably mean cutting 5% of expenditures (7bn of 144 bn) and 5% of evenue increases (6bn out of 126bn) and the rest from ECB and euro friends. That is, if anyone actually believes the numbers.
In return the ECB will probably ask for somethin' in return (e.g., do't let the Chinese buy all your debt). Not a big number for ECB to deal with when the potential outcome of a default would be far more damaging.
"The US desperately needs China to significantly increase their holdings of US IOU’s in the coming years."
Not true. The Chinese desperately need the US to continue running a trade deficit in order to absorb its huge overcapacity, which if it happens will automatically require China to recycle the trade surplus by buying US Treasury bonds. Foreigners do not fund fiscal deficits. They fund current account deficits, and they have no choice but to do so if they want to maintain the corresponding current account surplus.
This is basic balance-of-payments arithmetic. To say that the US wants foreigners to buy more US dollar bonds is the same as saying that the US wants the trade deficit to persit or even rise. They don't. If the US trade deficit declines, which of course would reduce the size of the borrowing the USG would need to keep unemployment from rising, then automatically foriengers would have to reduce their net purchases of US assets, including USG bonds. The purpose of Chinese purchases of euro bonds (whether Greek or other), is to help fund a rising European current account deficit, which China would like to see but of course Europe is eager to avoid.
I agree that our CA deficits are their CA surpluses. But show me in the rule book where it says thay have to invest their CA surplus in Treasury bonds.
Question for you. Is there anything stoppping China from selling Tbonds and buying some gold with the proceeds? No, not really.
What is the average life of China's holdings of T bonds now that they have sold their Agency MBS?
Pretty short, I think less than five years. Are they obligated to roll that over as it matures? No, not really.
I am not suggesting that these things will happen. I am suggesting that they could. We do not have the Chinese over a barrel with our CA deficit. They have us over a barrel with our debt.
Watching this global train wreck is becoming tiring.They could have solved this crisis by destroying bank bondholders but they did not, now it has gone too far and they have to destroy our deposits , alright just get it over with
Why don't they solve this crisis over Christmas while their is some festive cheer.
New years day revalue the major western currencys against gold
And to be fair tax us goldbugs 50% capital gains tax
And lets start over again
"And to be fair tax us goldbugs 50% capital gains tax"
WTF? Fair to whom? You need to reboot.
Cow when the dust settles on this disaster people will have lost most of their life savings so it follows that they would be mad as hell.
To avoid the heat the state will direct the mob towards the goldbug 'speculators' and so to avoid that nasty turn of events we will have to pay tribute to the state.
This is why the people in Goldman Sachs and other institutions are not as smart as they think they are.They may also have the loot but will not be able to sleep soundly at night and it won't be their conscience that keeps them awake.
i love greece, and have spent a lot of time there. but i will repeat: there are packs of wild dogs in athens.
The best years of my life were between 19 and 24 years old, fucking off to Greece every summer, hopping from one island to another with my buds, drinking retsina, eating great food and chasing Italian, Scandinavian, Spanish and German babes. All the money in the world can't put a smile on my face like the memories from those years. As that Bryan Adams song goes, those were the best years of my life.
Bless you Leo. I speak for many of us here in wishing you the very best and hoping the upcoming surgery is the miracle of at least stopping your symptoms or at the very least making now the worst it will be. And by the way, I have forwarded your post to several friends that either have MS, or have a loved one who do, and they are all extremely grateful to you for getting the word out. Thank you and ZH for getting posting this brilliant research. My sister is a neurochemist and was thrilled to read about it. Now if the neurologists can find a treatment, let alone a cure for RSD, let me know. It's also a neurological disease and when it goes systemic, as my case, you just can't get around anymore.
Thanks for your kind words. What is RSD?
From Wikipedia,
http://en.wikipedia.org/wiki/Complex_regional_pain_syndrome
Complex regional pain syndrome (CRPS) is a chronic progressive disease characterized by severe pain, swelling and changes in the skin. The International Association for the Study of Pain has divided CRPS into two types based on the presence of nerve lesion following the injury.
* Type I, formerly known as reflex sympathetic dystrophy (RSD), Sudeck's atrophy, reflex neurovascular dystrophy (RND) or algoneurodystrophy, does not have demonstrable nerve lesions.
* Type II, formerly known as causalgia, has evidence of obvious nerve damage.
The cause of this syndrome is currently unknown. Precipitating factors include injury and surgery, although there are documented cases that have no demonstrable injury to the original site.
Thanks for sharing. Howard_Beale, don't give up hope...one day at a time and no matter how hard it gets, keep forging ahead.
Amen to that!
Excellent Bloomberg interview with the Greek Finance Minister:
http://www.bloomberg.com/avp/avp.htm?N=video&T=Greek%20Finance%20Minister%20Interview%20&clipSRC=mms://media2.bloomberg.com/cache/vJACweTTIk08.asf
Listen carefully and stop believing all the scaremongering crap out there.
I'll get to it Leo--still listening to the GS Dubai conference call.
The Dubai debacle was a fart in the wind, just like I said it would be. Greece's fiscal woes are nothing new. Lots of noise so the big hedge funds can make some money. Watch and learn.
Yes but being a fly on the wall on the GS conference call showed just how clueless they are and that was worth listening to.
How are these countrys going to get the growth to get out of this mess - Answer: they cannot unless they devalue , and that goes for all debtor countries - when this is done we will have massive inflation but the global payments system may remain intact..... maybe
Being a Greek resident and following both the markets and ZeroHedge for quite some time, let me add my layman's opinion:
Hogwash.
The bailout(s) of most of the Eurozone countries have been largely going on via the ECB's "liquidity measures" for a year or so. Zimbambwe Ben is not the only one with a printing press, you know.
Yes, the Greek public debt situation is unsustainable, but this is old news in the making - 20+ years old, that is. The reason that it came suddenly to the limelight is the CDS trade and da boyz getting the spreads they want, if a country is idiotic (or captured, or likely both) enough to allow for the opportunity.
Debt percentages are one thing; Absolute numbers are another. Yes, the debt percentage practically guarantees bankrupcy if left alone; but, an ECB silent bailout is doable due to the small, on relative terms, figures involved - whilst for Spain, for example, it's not that easy. Remember the Eastern Europe real estate scare last year around this time? The Polish and Czech residential loans in Swiss Francs underwritten by Austrian banks? Same storyline, same approach. You get the picture.
Wash, rinse, repeat, as RoboTrader says.
As for the Greek state taxing the Greek shipping industry - anyone even remotely familiar with the matter will confirm that it's NOT doable.
The reason is that the largest part of the fleet has always been flying so-called "opportunity flags" (Liberia, Panama, Cyprus before the EU admission), and the operating norm has been one vessel = one company. So, it has always been a tax-free, legally segregated operation.
The onshore companies on Greek soil are mostly agents and dealmakers to their own "shipowner" companies. In most occassions, even these operate as branches of companies also incorporated in opportunity jurisdictions and only pay tax on their *expenses incurred in Greece* and not on their worldwide income. A hefty 6%. Sweet, eh?
There are exceptions (i.e. the large Nasdaq-listed operators) but yes, they are also taxed specially and the benefits outweighed the drawbacks (DRYS anyone?)
This sort of setup is the reason Greek shipowners can live in Switzerland (or, more frequently, in London) and avoid being taxed there, too. So no one will be shopping for Singaporean passports anytime soon. The Greek/UK/Swiss passports serve them just fine, thank you.
As for the Chinese - they are already present here. They recently took management of Piraeus (the largest port) for 30 years (if I recall properly) under agreement to double its capacity.
Much like in the US, a lot of news is scripted and brought to the spotlight at the right time for "business".
Just my 2 eurocents.
...and a greatly appreciated 2 eurocents. A good friend of mine is Greek with US citizenship and spends 1/2 and 1/2 of her time between the two countries. While she is not financially astute, she felt Greece adopting the Euro was a big mistake since it was a great tourist destination due to the exchange rate. Things she always left for her time in Greece (we're talking girlie stuff like hair salons, pedicures, as well as clothing) overnight became more expensive than the US. Her aging mother on a fixed income could no longer afford the basics of food and housing so my friend had to start sending her money and moved her into the apartment she owned. I'm guessing this is the case for many elderly in your country--please correct me if I am wrong.
Not just Greece, I spend quite a lot of time in Eastern Europe (Poland, Slovakia & Czech Republic). Summing up the grievances of people on the street sounds something like this: "wealthy nations in the EU are pillaging us".
And from the evidence I see when I take a look around, it seems that they have some point. Consumers have more choice, but prices are generally higher and local industries have been destroyed / looted / taken over by bigger players.
The Great Game in Europe never stopped being played, it's just more slick these days.
This is true in the sense that you can't live on the basic pension anymore. It was true for a long while, but now it's impossible. And the price differences you describe are both a function of the huge efficiency/competitiongap between the US and Greek retail sectors, further emphasized by the Euro/USD rate.
Families largely make up for it - thankfully the social fabric is still largely intact in the sense that people feel obliged to cater to their own. But it's getting progressively harder for the average Yiannis (as in "average Joe").
But the Euro was a savior in the sense that Greece avoided the currency nightmare and inflation wave that the newer peripheral EU countries faced - I'm talking Czech Republic and Hungary, not necessarily Bulgaria and Romania ... Everybody here is *fully* aware of it.
Unfortunately, my friend is the only family her mother has...and it is very taxing on her since she earns very little. Not all Greek families are large!
I see... making very little in the US in USD and having to convert a good part of that to Euro in order to support a parent in need of overpriced basics... and not being able to at least help in person is not a situation I would wish to be in... Sorry to hear that...
Anything smacking of one-world currency or one-Europe currency benefits only the oligarchy. It is a disaster in the making for ordinary people and the planet.
Eharisto! Finally, an insightful response on the "Greek debacle". I noticed shares of the National Bank of Greece were up strongly today after getting whacked in the last few trading sessions. What do you think? Good time to buy some NBG?
Not sure about the NBG timing. I only trade US markets, the commission structure in ASE (Athens Stock Exchange) is ridiculous and its NYSE ADR trades too thinly. These stocks are banged up and down depending on the Moody's script du jour, as if it matters. This one has always had good fundamentals, though. My trader friends at their Treasury division hold it in their personal portfolios, and that should mean something.
You're welcome Leo,
Imagine the paydirt when a piece of rating agency downgrade news sends the Euro-denominated bond spread between Greek bonds and German Bunds in the stratosphere, at the same time when da boyz either know (or safely bet) there are implicit politically-mandated guarantees in place (and the cost to the EU of upkeeping them is a bitch, but manageable on absolute terms *in this particular case*).
Plus they can now sell expensive insurance on the same bonds, pocketing both the spread plus the risk premium. How sweeter can it get, really?
I call this "arbitrage" or "free money" and this is the sort of business where da boyz and their rating agency cohorts excel.
Especially when said rating-agency cohorts are not really unfair... just "timed" to the bond auction.
It's not that things over here are, or will be pretty, fiscally speaking, but the doomsday trigger scenarios are solely CDS marketing material.
Bruce - Excellent thought-provoking article.
If I may be permitted an analogy with delicious Greek food that I love, you have indicated two financial choices:
1. Cold feta cheese, crumbled but robust and flavorful.
2. SAGANAKI (FLAMING CHEESE OPA)
1 lb. soft Kasseri or Kofalotiri cheese
3 tbsp. butter
1/2 lemon (juice)
2 tbsp. brandy
Cut cheese into slices 1/4 inch thick. Place on broiler pan and brush with melted butter. Broil on high 4 to 6 inches from heat until cheese bubbles. Remove from heat.
Pour brandy over cheese and ignite immediately.
Sprinkle with lemon juice and serve with bread. Opa!
http://www.cooks.com/rec/view/0,171,159166-254206,00.html
By the way, best Greek food I've had in a long time was at Santorini restaurant in Sleepy Hollow NY.
Kasseri and ground lamb and mint quesadillas.
Wow!
"Greece is the heart of Europe. The ECB will step in and dictate policy, but they will help them. China should also partner up with Greece and use their ports to ship goods around the world. Moreover, Chinese solar companies should look at developing solar farms in Greece and export energy to the rest of Europe. Think big, not small"
You did exagerate the importance of your ancestar's nation afterall.And more or less Greece was just a couple of months ago,in a semi civil war. What do you call all the violent eruption of civil unrest when it involves bombing and destroying of privatte properties?. Or that would be civil war only if it happens in a thirld world country?. And while Greece is excellent for tourism,and olive oil,beside that I don't see any importance of a great degreebeside it being part of the pretty soon defunct Euro system(In general,I like Greeks as they are easy to get a long with)
A few hundred thugs throwing Molotov cocktails in Athens is hardly a civil war (I would have ordered the army to arrest them and throw their anarchist asses in jail). Greece had its civil war between 1946 and 1949. It was a bloody mess no thanks to the CIA. The funny thing is that there are a few smaller European nations whose inhabitants are increasingly questioning the benefits of being part of the European Union. Greece got tons of transfers from the EU, but at what cost? I say they bring back the good old drachma years. It was a joke of a currency but at least people were happy back then!
Taxing the Greek shipping companies is the stupidest idea I've heard. Those companies are only "Greek" shipping companies because there is no tax. They don't do much business with Greece, so if Greece raises their taxes they will reincorporate somewhere else.
I hear that Liberia is a great place to register your freighter.
Greece cannot negotiate bi-lateral trade conditions because of the EU treaties. If it wants to sign a FTA with China for 25 bln EUR, it will have to get out of the EU first. Not that they are not allowed to get out : there is an exit clause in the Lisbon treaties. But Greece can't have its cake and eat it too.
As for being the heart of Europe, modern europe is made of three historical layers, that reflect quite well the chronology of its creation :
Carolingian empire and its successor Holy German Empire,
Western Roman Empire,
Western + Eastern Roman Empire.
Greece is only part of the third layer, together with Bulgaria and Romania. I see all three being in trouble vis-a-vis the Union.
Gallia est omnis divisa in partes tres.
De Bello Gallico, Julius Caesar
Is that served with fries?
Greek shipping tycoons who live in Switzerland can easily become Singaporean shipping tycoons who live in Switzerland, who speak Greek.
Bruce,
Greece is in trouble but so was Ireland and Spain. They're going to have to adopt the same austere fiscal measures as these nations to come out of this crisis. Will Greece bring down Europe, the euro and the global financial system? I would like to exaggerate the importance of my ancestral nation, but come on, let's get real.
Greece is the heart of Europe. The ECB will step in and dictate policy, but they will help them. China should also partner up with Greece and use their ports to ship goods around the world. Moreover, Chinese solar companies should look at developing solar farms in Greece and export energy to the rest of Europe. Think big, not small.
As for Greek shipping tycoons, most of them live in Switzerland and pay little to no taxes. That's why they are obscenely rich.
Nope.
The heart of Europe is a little bit between Paris and Berlin. These two countries were founding members, they have the largest population and the largest GDP. They call the shots. Period.
Greece is a latecomer at best, and a very small, very junior partner at worst. As I have posted on ZH before, Greece GDP is about US$ 357 billion. France GDP is US$ 2.85 Trillion. Germany's GDP is US$ 3.65 Trillion (EU GDP = US$ 18 Trillion). Greece is a MIDGET, in terms of economic "power".
This being said, I agree that the ECB will eventually relent and help the Greeks. But they will have to pay dearly for that "help". Take a long hard look at Ireland to see the kind of measures that will be required by the ECB. It's not pretty.
"Greece is the heart of Europe."
Leo, to which millennium do you refer?
Oh man. You're asking for it.
I cast my gratitude across all time. Most of what I've learned and understood and come to accept as true and valuable originated from greece. 90 percent of all colleges in the world teach nothing but crap except for the very valuable contributions of the Greek nation. Everybody contributes but it's hard to find another little nation that has given the world more than Greece.
Ok enough carot. You better be nice to the greeks or those curly haired little bastards will cut ya. LOL
Leo,
While this link I am posting is nearly a year old, it is well worth the read. Here's a small part of it:
"Euro adoption is irreversible: Was it a mistake?
The euro area will hang together, in other words, because the decision to enter is essentially irreversible. Getting out is impossible without precipitating the most serious imaginable financial crisis – something that no government is prepared to risk.
But then was the mistake getting in the first place? Opponents of monetary union founded their arguments on asymmetric shocks. They argued that adverse shocks affecting some members but not others were so prevalent that locking them into a single monetary policy was reckless. If those asymmetric shocks hit heavily-indebted countries, then the latter would also have no capacity to deploy fiscal policy in stabilising ways. Absent coping mechanisms like a system of inter-state transfers, the only option would be a grinding deflation and years of double-digit unemployment. More prudent would have been to allow such countries to retain the option of pushing down the exchange rate instead of pushing down wages.
Part of what we have seen is clearly an asymmetric financial shock. Countries like Greece with debt and deficit problems have been singled out by investors who are now fleeing everything that emits the slightest whiff of risk. Similarly, the countries with the biggest housing bubbles, such as Ireland and Spain, are now suffering the most serious slumps as their bubbles deflate and problems ramify through their financial systems. It is their bond spreads that have shot up. It is there where output has slumped most sharply and where the need for wage reductions is most dramatic. The only mystery is why it took investors so long to focus on their problems – why were they not singled out six months or a year ago?"
http://www.voxeu.org/index.php?q=node/2815
Best wishes to you,
HB
Same reasons they're not one year after?
Good dig, Howard. Good to see you regularly again.
I'm with you Leo. If this country gets in real trouble can't they just lower the price of grease and sell more? The world is full of bearings all of which need grease.
+10
LOL!
Greece is already in a state of civil war. It is too late for any kind or level of paper shuffling to save their bonds now.
Yes, it's just like Congo! Where do you come up with these ridiculous statements? Have you ever visited the country or do you like to talk out of your ass?