D
Deleted member 231381
Unconfirmed Member
Actually, the price increases in all of those graphs happen before the default - you can tell when the default is because inflation suddenly plummets to normal levels.
-
Hey Guest. Check out your NeoGAF Wrapped 2025 results here!
Greece to hold referendum on austerity measures 5 July
- Thread starter Coriolanus
- Start date
- Status
Actually, the price increases in all of those graphs happen before the default - you can tell when the default is because inflation suddenly plummets to normal levels.
hydrophilic attack
Member
Your will notice that, within a few years, inflation rate is back to pre-crisis levels. That's a lot better than what can be said for, say, Greek GDP a few years after the beginning of the Troika's program for Greece. And yes, inflation will cause pain in the meantime. But so will (and has) austerity.
It's a bit complicated because no-one actually knows for sure. It basically depends on just what kind of economic impact can be expected from leaving the Euro and because nothing like this has ever happened before, so the prognosis differs with the source and there's a lot of bias. That also makes it difficult to compare to other historical defaults, although they provide a reference of sorts.
The reason hyperinflation is a particular concern in this instance is that the new Drachma wouldn't have grounding. No-one would really know what it's actually supposed to be worth because Greece has used the Euro for so long. Couple that with the fact that Greece would implement it in no small part in order to inflate it to pay off domestic debts and cushion the impact of any short-term default-caused crisis and you can see why hyperinflation could be more likely.
Regarding currency impacts in general there are other concerns. Firstly, a devaluing drachma will drive up import costs which can hit ordinary Greeks hard, especially since Greece is a net importer. Secondly, a Greece's international debt is still in other currencies, the Euro primarily, which means that Greece would have to print more money to pay it off which would drive inflation. That is assuming that they don't default on everything, of course.
Who knows how it compares to 15+ of austerity. I'm starting to lean towards that it couldn't be worse though, provided that any potential humanitarian disaster is staved off in the early crisis phase.
SymbiantXenos
Member
A billion dollar shenmue 3 would be the greatest game of all time. ALL time
That could do it.
Half-Life 3, sold exclusively via Greece.
Tax money from that should resolve the debt and then some.
1) Greece reverts to drachma.
2) Sets initial exchange at 1:1 with the euro.
3) Market says "nope" and prices it differently, say 10:1 with the euro.
4) Effective prices have just gone up 10x.
Imports are that much more expensive. Euro debt is that much more expensive. Local merchants raise prices because they don't want to sell something for much less than it is worth.
Some countries (like China) have the reserves to manipulate their own currency to keep it at a fixed exchange rate (China pegs to the US dollar).
Other countries have an "official" exchange rate when is lower than the market rate (valuing the native currency higher) and a "black market" exchange rate which is usually the true exchange rate.
Either way, it's not good if you're getting paid in the native currency.
Which Greece has been insulated from since it was using the euro. If it leaves the euro and goes back to its own currency, the market correction will appear in full force.
D
Deleted member 231381
Unconfirmed Member
Of course, the above only applies if the Greek government is stupid enough to set the drachma 1:1 with the Euro, which they're almost certainly not. If Argentina and Nigeria can manage it, I'm sure Greece can.
Theonik
Member
Pfff, what a pansy-ass phalanx. Get a real Sarissa.
An extreme example
It could have been so good. But you had to RUIN it.
Please back Shenmue III
The problem with looking at historic results like those graphs is that Greece risks being kicked out of the eurozone, which will have negative effects for all involved. The situations of the countries in the graph and Greece are not the same at all and can't be compared.
Unless the market disagrees with their assessment anyway. They might set it at 5:1 while the market thinks it should be 15:1.
Then what should they set it to? No-one knows what it's worth.
D
Deleted member 231381
Unconfirmed Member
I mean, yes, they have to set the initial peg of the drachma at an approximation of the drachma in Euros. You can get this wrong, but in most modern defaults it has gone quite smoothly, as all three examples I posted earlier (Argentina, Russia, Nigeria) demonstrate as well as a host of others. Ones that went wrong are the exception rather than the norm and usually have other proximate causes (like Zimbabwe's government being a cesspit of evil).
hydrophilic attack
Member
Long-term, not being bound to a currency which is much too strong for them will be good for them.
An extreme example
Here's an even more extreme one, and more recent to boot:
Hyperinflation in Zimbabwe got so bad that the money literally wasn't worth the paper it was printed on. Using Zim dollars was cheaper than toilet paper. Large sectors of the Zimbabwean economy outright reverted to a barter system.
Definitely agree with that though. Inflation is isn't all downsides, especially if you're a government handling an economic crisis and has difficulty financing yourself. Biting the bullet and printing more money while waiting for the economy to stabilize can be better than austerity. It doesn't hurt that it gives exports a boost and it prevents people from simply stuffing their mattresses with cash and stifling the economy. You just have to keep it managed to provide people to keep up and prevent an import crisis.
Argentina backed its peso against a physical supplies of dollars. Nigeria backed its naira against its oil supply. Russian Ruble is going backwards very strong. What will Greece use?
D
Deleted member 231381
Unconfirmed Member
Except they do? The stock of money times the transaction velocity divided by the stock of production gives you the price index. The Greek government would definitely know the first, because they're in charge of it, and they know the second, because that only changes very slowly. The tricky part is transaction velocity, but the historical predecedent has been either fairly accurate devaluation pegs, or very rapid adjustment (i.e., an inflation burst lasting a year at most) - certainly not lingering inflation.
EDIT: The whole point was that Argentina STOPPED using the dollar to back the peso. Like, the fact they pegged the peso to the dollar was one of the reasons they had to default in the first place. I mean come on, that's basic research.
This is a straight up lie
Theonik
Member
The national Feta reserves.
We are talking about changing the currency. They did so by backing its peso with dollars. They eventually stopped fixing the exchange rate at a 1:1 rate but they are still backing their currency with dollars. Argentina still has a massive amount of US dollars to regulate its peso, they just don't it as strictly anymore. It basically means they're stimulating the export sector while still guaranteeing money.
Even with a No vote it does not actually mean Grexit. The Germans will be forced to abandon their inflation phobia because the European stock markets will collapse in double-digit moves and Euro shorts will build up very quickly - you will get far more QE and a sudden push to move forward with a mechanism for inter-state transfers to make EMU mimic a more realistic single currency. No matter what any of them say, if the vote is No then the domino's will start falling - once they reach Spain or Italy it's endgame. They know this.
As for the perceived fault for the collapse in talks, we've had it broked to us from multiple sources that a verbal agreement was reached between all parties last weekend, it collapsed when individual finance ministers came back with new additions in order to smooth the approval for the package through their own parliaments.
I hope the Greeks vote no, the blackmail is what the Troika are offering.
As for the perceived fault for the collapse in talks, we've had it broked to us from multiple sources that a verbal agreement was reached between all parties last weekend, it collapsed when individual finance ministers came back with new additions in order to smooth the approval for the package through their own parliaments.
I hope the Greeks vote no, the blackmail is what the Troika are offering.
I do agree with that. Greece has been living far beyond their means after joining the eurozone, and they should have never been allowed to join in the first place. They are now going to pay the price for that overspending, and it will be a couple of very hard years for them. Hopefully they will manage to get back on their feet reasonably fast.
Theonik
Member
I debated using Zimbabwe as an example, or maybe Greece's WWII occupation economy, but that picture of the children building cashtles holds a dear place in my heart.
Oh sorry, I misunderstood you. I thought we were just discussing the starting point. They obviously shouldn't peg the damn thing at 1:1 to the Euro, that would more or less defuse the very point of a Grexit.
D
Deleted member 231381
Unconfirmed Member
The Argentinian peso is neither backed by nor pegged to the dollar (or is no more so than any other currency traded on global markets which can be exchanged for the dollar by central banks to smooth exchange fluctuations), and has not been since 2002. The Argentinian central back occasionally buys dollars with pesos or sells pesos for dollars to soften rapid exchange rate fluctuations, but most countries will do this (if not to the same extent), and Argentina itself has rapidly reduced the extent to which it does this since 2006. You do not know what you are talking about.
Eien1no1Yami
Member
https://www.youtube.com/watch?t=32&v=pyjVAUhHqzs
Very interesting video, in times like these, it is a must watch
It gives you strength if you are a greek actually
Very interesting video, in times like these, it is a must watch
It gives you strength if you are a greek actually
Ether_Snake
å®å®å®å®å®å®å®å®å®å®å®å®å®å®å®
Each Greek, from newborns to the oldest, have 32000 euros of debt.
Anything but writing off the debt is pointless.
Anything but writing off the debt is pointless.
I dont see how getting out of the Euro helps Greece. The rest of Europe can just hold them to ransom. Pariah them. Demand they still pay up the debt, and make it difficult for anyone else to deal with them. The only way they can really get out of this is if the creditors agree to let them out of it, which will never likely happen.
Well a default and total write off are more or less the same things. The problem for Greece is how to borrow to sustain current spending after this point.
Coriolanus
Banned
Don't forget that they can also go to war with them, kill everybody and take all their land.
I mean, since we fearmongering and all.
Debt per person is pointless here and shouldn't be used as a talking point.
Because if you're going to use it, it makes the Greeks look bad in comparison, even though it really has nothing to do with the current crisis.
As an example, the US has 52461 euros of debt per person. That's more than 20000 euros more per person than Greece.
By your logic, the US should just write off all debt and tell the world to GTFO. No one's getting repaid.
If all countries with debt did that, world finances would simply collapse.
CyclopsRock
Member
I think you'll find it's called the EUSSR, guys.
Ether_Snake
å®å®å®å®å®å®å®å®å®å®å®å®å®å®å®
We're talking about a country on the verge of default trying to negotiate bailouts with creditors who refuse to negotiate debt relief here smarty pants.
Coriolanus
Banned
No, in that, at least, he's right. Government debt has very little to no bearing on personal debt. It's not like the creditors can loot the accounts of private citizens to cover it up.
D
Deleted member 231381
Unconfirmed Member
Personally I prefer the United States of EuraSIA SIA SIA, EuraSIA SIA SIA, EuraSIA SIA SIA.
I didnt know we werent allowed to do that here, didnt realise it was only optimism. They'll probably be alright.
The more important event is that the 2nd bailout program has officially expired. It was already to late to activate it due to logistic reasons, but now it's official.
Everything has to start anew now.
But Greece is still gonna vote on an expired proposal next Friday, because why not.
Everything has to start anew now.
But Greece is still gonna vote on an expired proposal next Friday, because why not.
Frankfurter
Member
It doesn't matter if Greece sets the New Drachma 1:1 or 1 quadrillion : 1. These are just nominal values and real things (say houses, food, wages etc.) will just adjust accordingly (either times one or times a quadrillion).
What matters is the point after Greece set the Drachma and the markets open: Drachma will depreciate (again: no matter what the previously set exchange rate), making Greece much more competitive in an instant, but also making imports much more expensive, possibly Leading to very high Inflation Rates, lowering real wages etc.
Scott32020
Member
Like the Greek government would agree to that.
No, unless they are truly insane, Greece won't completely throw its citizens under the bus.
CyclopsRock
Member
It still matters, though, because that initial rate will define how many Drachma's a person has in their bank account that was, hitherto, stuffed with Euros. Whilst goods and even wages can fluctuate as (and as a contributor to) finding "the real" exchange rate, bank account balances can't.
From what I can understand.
Greece cannot get any more money from the IMF until it makes the late payments. IMF does not declare Greece "bankrupt", but that it "delayed payment". Important to rememberthat IMF loan payments TO Greece have not been made at all since September 2014.
So the problem now is not the lack of that money (because it was not being paid) but the fact that the "program" is legally over and the terms that were signed don't legally bind the creditors to provide help to Greece at the moment. EU and Eurozone legal terms still hold.
D
Deleted member 231381
Unconfirmed Member
What Cyclops says. The initial value the drachma is set at is actually very important.
PumpkinSpice
Banned
Since the value of a floating (non-pegged) currency is entirely psychological, it totally matters what the inital rate is. If it's set 1:1, many people will correctly say "it's not worth the same as a Euro" and inflation will start/be much more rapid. If it's 2:1 and people think "it's worth about half as much" it could be much more slow.
I'm also curious what the mechanism of switchover would be. Since everyone's bank account is currently in Euros, do the account balances switch to a new currency overnight? Or is the balance kept in Euros, then only converted at withdrawl time (maybe allowing you to take out Euros but only in tiny amounts)?
Could they peg the value initially for say a month to avoid immediate inflation, and then switch to floating / currency exchange afterward? This would help to get some price stability going.
I think there are a lot of ways they could be careful about the roll-out of a potential new currency so that it wouldn't be so destructive.
Randomizer123454444
Member
I was wondering that if Greece misses the payment today, then why would the referendum hold any weight? But if the "real" default is month(s) away, then I guess the referendum really does have a point.
I'm predicting a narrow win for "YES". The media scare game seems to be strong and I remember reading from somewhere that "YES" had 57% support (in polls) right now.
I'm predicting a narrow win for "YES". The media scare game seems to be strong and I remember reading from somewhere that "YES" had 57% support (in polls) right now.
- Status