Home > Uncategorized > Stop the frenzy, please. It’s just about rolling over the debt…

Stop the frenzy, please. It’s just about rolling over the debt…

Greece did not need money to pay pensions. Greece needed money to… roll over its debts and to pay interest. Yawn. And the whole third bail out package is tailored to exactly this: swapping one kind of financial asset for another (tabel) (and oh, banks will receive another 25 billion of free money). The present situation in which the Greek bank system is closed and the creditors do all they can to destroy the Greek economy (again: tripling tourism VAT is a very, very bad idea) might however mean that Greece won’t be able to pay pensions or whatever, too. What Greece needs is, of course, a return to nominal growth ASAP. Graph 1 and 2 show that, in 2014, Greek debts actually declined a little but despite growth of the real economy, debts as a % of GDP increased because of price deflation. Mind that the largest increases of government debt in table 2 are caused by government transfers to banks – with the blessings of Brussels. Save the banks, screw the vulnerable. Last post for some weeks. somewhere in the Vosges, in France, I’ll occupy myself with family matters, cycling and sixteenth century Frisian farmers who were already lending and borrowing quite a lot – without banks (the ledgers with all these data are nowadays, transcribed, on the internet!). But aside from a pawn shop ran by an orphanage in Leeuwarden real banks in Friesland were, despite all this lending and borrowing, only a nineteenth century invention – which leads to the Coasian question: why do banks exist. Clearly not (just) to facilitate lending and borrowing… 

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  1. Philippe
    July 16, 2015 at 10:52 am

    “Greece did not need money to pay pensions. Greece needed money to… roll over its debts and to pay interest.”

    But why did it have those debts in the first place?

    Because it borrowed to pay pensions, or because it borrowed for some other reason?

    The way you put it, it’s like you’re suggesting that their debts just appeared out of nowhere for no reason.

  2. merijnknibbe
    July 16, 2015 at 7:23 pm

    Dear Philippe,

    The present about 180% of GDP debt of Greece is to an exten (25 billions from a total of about 320) caused by bank aid. Also, Greek GDP declined with about 25% – which sends the debt to GDP skyrocketing through a leverage effect. Mind that, back in 2007, nobody in his right mind would have predicted this, expectations were that nominal GDP would grow with 3 or 4% a year.

    But indeed – former Greek governments did so now and then indulge in 10% wage increases and the like. But those things are not the point here. At this moment, it is mainly abour rolling over the debt – which means that hardly any ‘new’ money is involved. And the creditors actually do earn quite a bit of interest… (see the data). Which, in my view, is as bonkers as those wage increases.

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