2011 November 14 Monday
Greece Reliant On Iranian Oil To Prevent Collapse

This illustrates just how imperiled are the Greeks.

Greece is relying on Iran for most of its oil as traders pull the plug on supplies and banks refuse to provide financing for fear that Athens will default on its debt.

Think about that. Greece is in such dire straits it is now reliant on Iran to keep the oil flowing. If I was a Greek I'd transfer all my money out of the country into a mix of German and American banks. I'd also be stocking up or looking for a job abroad. A foreign job would be best since the drachma will be a pretty weak currency and foreign-earned money will enable some Greeks to pick up cheap housing and cheap failed businesses back in Greece.

Mish has more. Mish thinks since the exit of some Euro currency zone members is inevitable we should move on to discussing how best to do that and which members should leave. He suggests Germany. Very contrary thinking.

The Germans are ready to let the Greeks leave the Euro.

German Chancellor Angela Merkel’s Christian Democratic Union party voted to allow euro states to quit the currency area, endorsing the prospect of a move not permitted under euro rules.

Greece's choices at this point are default within the Euro or default outside of the Euro. The problem is that default causes Greek banks to collapse as they are major holders of Greek government debt. The Greek government will have to try to save depositors even as it stiffs lenders. The Greek economy will contract much more once the government defaults and the Greek economy is already contracting this year.

The German government is thinking thru the possibilities for a Greek euro exit.

The German government has been simulating a range of scenarios to prepare for a possible exit of Greece from the euro zone. Under a worst-worst-case scenario, the country could descend into a vicious circle of misery that could last decades.

Why are the Germans considering cutting Greece loose? One possibility: To save their powder for trying to save Italy and Spain. Italy is already paying an interest rate on new bond issues that it can't sustain. Anything above 6% is basically unsustainable danger zone. As old bonds get redeemed the higher interest rates on new bonds become too high a cost for a country with debt equal to around 100% of GDP.

Even with the change of government in Italy, a Monday auction of five-year bonds saw the government pay rates of nearly 6.3 percent — the highest since the country adopted the euro and more evidence that the ECB was not moving aggressively to hold down the country’s borrowing costs.

Meanwhile, rising interest rates on French debt threaten to undermine France's ability to participate in bail-outs for the southern European nations.

On Monday, the yield on France’s 10-year bond — the usual yardstick for a country’s borrowing costs — rose 0.05 percentage points to 3.42 percent. That’s nearly twice Germany’s and significantly more than the roughly 2 percent paid on 10-year U.S. Treasury notes.

Share |      By Randall Parker at 2011 November 14 08:50 PM  Economics Sovereign Crises


Comments
Black Death said at November 15, 2011 5:42 AM:

The best solution would be for Germany and a few other countries (maybe Austria, the Netherlands and Finland) to pull out of the Euro and set up their own (strong) currency. Let the PIIGS stew in their own juice. Whether Merkel has the backbone for that remains to be seen.

Stephen said at November 15, 2011 7:36 PM:

The best solution would be to let Greece et al default without any government funds coming to the aid of bond holders. At the moment the bond holders are acting irrationally so they need to learn a lesson.

Does anyone really believe that Italy was at risk of default prior to the coccain snorting bankers deciding they need to threaten contageoun in order to cover their bad lending to Greece?

Fritz said at November 15, 2011 8:10 PM:

"He suggests Germany. Very contrary thinking."

Not contrary at all. Why should the hard-working, productive Krauts support Griks? Or the lazy WOPS and Juans? Kind of has me thinking about who is paying for who here in the US of A...

bbartlog said at November 16, 2011 6:37 AM:

The Greeks, Italians and Spanish aren't lazy by global standards; they might not be productive enough to achieve German levels of GDP-per-capita, but they are perfectly able to have functioning first-world economies based on their own merits. The problem there (same as here) is that the government has overspent and caused people to have an inflated sense of entitlement. The problem of Greek public workers is essentially the same as that in California.
I agree that the bondholders need to take some huge losses. Of course, the problem is that because many of those bondholders are effectively massively leveraged (being banks, using fractional reserves) this will cause them to implode. The long term choice that people will have is between a solvent banking system and a sound currency (meaning one that doesn't have double-digit inflation). Of course, either one of those can be remade.

A.Prole said at November 16, 2011 12:15 PM:

Actually - this is a point that gets lost - Italy has got a very strong engineering/manufacturing sector, and leads the world in many types of complex machinery, I woudn't say they're up to German standards, but they run pretty close.
Their exports and trade balance (in the final analysi all that really matters), are healthy.
By contrast, the industrial and trade capabilities of the UK and the USA are the real basket-cases.

It's only that fucking shitty flawed and fucked up political elitist pompous grandiose Euro currency project that's killing Italy.

A policy endorsed by te WSJ and 'The Economist'.
Enough said.

A.Prole - A man who fervently believed that the dirty cunts who write for 'The Economist' have fucked up the World.
He IS NOT a paranoid delusionist, as some might think, but a very, very careful and thought observer and strenuous thinker.Furthermore he thinks that great ancient Indo-European word 'cunt' is the only apt description possible in any language to describe 'Economist' writers.
Apologies to unwashed females everywhere, 'The Economist' is the biggest insult possible here or anywhere.

bbartlog said at November 16, 2011 3:04 PM:

Yes, northern Italy in particular has some world-class manufacturing (I remember speccing out some nice gears from Ghiringelli, back in another life when I designed steel mill equipment... the customer was Italian, too). Fucked up government and tax laws, but who are we to point fingers?
One thing I rarely see mentioned explicitly is the underlying reason(s) why one country might need or want higher inflation than another. It comes down to tax collection. When the government is too ineffective or corrupt to be able to collect sufficient revenues by the usual (more avoidable) means of taxation, it can rely on inflation as a means of financing which is a pretty unavoidable tax. This is why Greece needs to be able to print its own money (well, that or shrink its government dramatically). If you had governments that did not engage in deficit spending, then you could actually have a unified currency zone without irresolvable conflicts of interest about the appropriate rate of inflation. Or, for that matter, if you had hard currency... governments would find themselves on a very short leash in terms of the debts they could amass, if they had to pay in gold.

Rama Kandra from Matrix said at November 17, 2011 11:50 AM:

Off-topic:

Great video lectures on Math available here:

http://www.uccs.edu/~math/vidarchive.html

Good enough for a solid undergraduate education in Applied Math (Real/Complex/Functional Analysis, Optimization, Math Stat, Linear Models, some Abstract Algebra). This is stuff you won't find on academic earth either.

The teaching is *SO* much better than my high-ranked (but shitty) university.

Down with the brick-and-mortar university (except UC-CS).

- Rama Kandra

Railing against brick-and-mortar universities while being within the US since 2009.

Randall Parker said at December 4, 2011 5:27 PM:

Rama Kandra's link is to the University of Colorado, Colorado Springs Department of Mathematics videos for many math courses. Haven't had time to watch any of them yet. I'd like to find time to watch the statistics classes.


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