So what actually happens if the nation of Greece fails financially?

[thebluefood]

Imagine how Germany feels in all this. They've implemented fiscally conservative policies and yet due to the way the EU is constituted, they may be hosed anyway dues to the profligacy of the southern EU countries. In the span of the last week it was reported that Spain needed 50B, then it was 80B and now it's 125B. How do you dole out these absolutely crazy sums and not demand structural reforms? What a mess.

I know I'd be extremely upset if I were Germany. They seem to have their affairs in line but they have to continually bail out their less responsible EU neighbors. How frustrating it must be.

[Forehead]

I know I'd be extremely upset if I were Germany. They seem to have their affairs in line but they have to continually bail out their less responsible EU neighbors. How frustrating it must be.

Out of curiosity, how many countries in Europe actually have their **** together? Germany clearly. I'd assume England? I haven't heard of any major issues with any of the Nordic countries. What's Europe batting...about .500? I'm genuinely curious.

[thebluefood]

Out of curiosity, how many countries in Europe actually have their **** together? Germany clearly. I'd assume England? I haven't heard of any major issues with any of the Nordic countries. What's Europe batting...about .500? I'm genuinely curious.

Not at all an expert here, so someone please correct me if I'm wrong, but it seems that the Southern European nations (Greece, Italy, Spain, etc.), Ireland and, to a lesser extent, France, are all in deep trouble financially. Former USSR nations aren't doing so hot, either, but that's been the case for decades.

[deejaydana]

Out of curiosity, how many countries in Europe actually have their **** together? Germany clearly. I'd assume England? I haven't heard of any major issues with any of the Nordic countries. What's Europe batting...about .500? I'm genuinely curious.

Germany has been, in comparison to the PIIGS, doing amazingly well. That's what's perverse about the EU compact: Germany's success is just sucked down the tubes by the southern countries lack of seriousness in reforming their own economies. The nordic countries are all doing better at this point in time. I still can't understand why more stringent reforms aren't made as part of the agreement when huge bailout money is doled out but if you frame it from the perspective of our own bailout(s) you also see that we still haven't made some tough structural reforms. the EU's task is even steeper: implement effective change across many different cultures and countries.

[JMS]

LOL it seems that most of Northern Europe feels that the Greeks are lazy and stupid and deserve to go broke. That is what I have gathered from speaking with many about the crisis

I think it's funny how one of the most heavily unionized countries in Europe is kicking everybody elses butts economically; such that they are being forced to bail these other countries out.

As for German's being "lazy" and "stupid" there is truth to that. Anybody who has ever tried to ask for a bottle of ketchup in a German restaurant can attest, German's econmic model doesn't lend itself to dynamic random requests for service. The German's are famous for working smart, not particularly hard. Europe is relying on them to step up to the plate and look at the big picture. I really hope the German's aren't too provincial to rise to the ocassion.

[Mr Awesome]

too bad Greece cant export hot women....they'd make a fortune.

[JMS]

Greece = Maryland in economy if i read it correctly so in my ignorant non-economical mind - if you can't absorb and fix that, you have bigger issues.

Of coarse they could fix Greece. Of coarse they could give Greece a path to economic solvency if they chose to. If you look at Greece as a model for how they will handle Spain, Italy, and possible France; then you are pesimistic about what comes next..

What it looks like now is Germany is going to let the little fish struggle/die; because they really won't effect Germany much... Meanwhile they are going to get more pragmatic with the larger economies.. Least it looks like they are taking a more constructive role with Spain. However it also looks like Spain is playing hardball too... We die and we will take you with us kind of thing... which isn't entirely wrong.

[Madison Redskin]

What happens to the world economy?... Nothing.

What happens to the EU?... Nothing.

That's a very optimistic prediction. I tend to find Hubbs' post more realistic. I think a "real" Greek default would put enormous pressure on the rest of Europe, particularly Italy, Spain, and Ireland.

[deejaydana]

I think it's funny how one of the most heavily unionized countries in Europe is kicking everybody elses butts economically; such that they are being forced to bail these other countries out.

As for German's being "lazy" and "stupid" there is truth to that. Anybody who has ever tried to ask for a bottle of ketchup in a German restaurant can attest, German's econmic model doesn't lend itself to dynamic random requests for service. The German's are famous for working smart, not particularly hard. Europe is relying on them to step up to the plate and look at the big picture. I really hope the German's aren't too provincial to rise to the ocassion.

What on Earth do you base such wholesale statements about the Germans upon ? Is this post serious?

[Mr Awesome]

Of coarse they could fix Greece. Of coarse they could give Greece a path to economic solvency if they chose to. If you look at Greece as a model for how they will handle Spain, Italy, and possible France; then you are pesimistic about what comes next..

What it looks like now is Germany is going to let the little fish struggle/die; because they really won't effect Germany much... Meanwhile they are going to get more pragmatic with the larger economies.. Least it looks like they are taking a more constructive role with Spain. However it also looks like Spain is playing hardball too... We die and we will take you with us kind of thing... which isn't entirely wrong.

Is that where you are getting where Germans are lazy? I have never heard anyone say that before...

Greeks and the rest of the Mediterranean countries, including the Middle East, are typically lazy workers.

[JMS]

That's a very optimistic prediction. I tend to find Hubbs' post more realistic. I think a "real" Greek default would put enormous pressure on the rest of Europe, particularly Italy, Spain, and Ireland.

Greece is 4% of Europes GDP. It will not be a significant blip when they go under... Which is why they are not being thrown a meaningful lifeline.. Greece will fail, and nobody cares.

The only imortance of Greece is it's a harbinger for how Europe/ mostly Germany will deal with the larger economies coming down the pike in the Same boat as Greece. Spain, Italy, and maybe even France if any of those countries fail, that will definitely impact the rest of Europe, and the world.

---------- Post added June-11th-2012 at 02:32 PM ----------

What on Earth do you base such wholesale statements about the Germans upon ? Is this post serious?

You ever been to Germany? Believe me, I'm German I know..

---------- Post added June-11th-2012 at 02:51 PM ----------

Is that where you are getting where Germans are lazy? I have never heard anyone say that before...

Yes, I think the fact that Germany has a shorter work week which is getting shorter is testament to Germans not working hard. I think you also get evidence of this to how litigious they are. Not through the courts but through their unions. They will spend days arguing about who should do something stupid like moving a box even though there are six guys standing their all capable of picking up the damned box. Now is this Lazyness... not really... It's more like a hyper anal sense of right and wrong being pusued to it's most exasperationg microscopic an retentive conclusion.. It's the culture....

The net result is I've never met anybody who has worked with the Germans, much less in Germany who came across with admiration for their work ethic. Germans are famous for working smart, least that is my unscientific sampling of many years of empiracle data...

Greeks and the rest of the Mediterranean countries, including the Middle East, are typically lazy workers.

I don't think anybody in Europe works as hard as we do, much less as hard as the Japanese. I think the Europeans in general value working smarter, not harder. I don't think Europeans would find that description insulting, I think they like to think of themselves as smarter able to compete favorable with folks who waste their time and effort needlessly.

Germans don't care one wink about working hard, they are much more focused on productivity; and they don't equate the two like we here in the US do.

I think that description is true of Germany... I have no personal experience with the Greeks to judge.. I know the spanish even work less than the Germans... they have a culture of napping for a few hours in the middle of the work day... I mean come on.!!

[deejaydana]

^^^^^ Yes, Ive been to Germany and while I don't know the entire culture and its working environment Ive not often heard it said that Germans were lazy or stupid as you posted earlier. Was just hoping you had something substantive to follow up with here. I guess I just haven't seen it asserted often in recent news that Germany was the problem country in this whole debacle when it came to their own economy and how it's impacted other EU nations.

[Mr Awesome]

Yes, I think the fact that Germany has a shorter work week is testament to Germans not working hard. I think you also get evidence of this to how litigious they are. Not through the courts but through their unions. They will spend days arguing about who should do something stupid like moving a box even though there are six guys standing their all capable of picking up the damned box. Now is this Lazyness... not really... It's more like a hyper anal sense of right and wrong being pusued to it's most exasperationg microscopic an retentive conclusion.. It's the culture....

The net result is I've never met anybody who has worked with the Germans, much less in Germany who came across with admiration for their work ethic. Germans are famous for working smart, least that is my unscientific sampling of many years of empiracle data...

I don't think anybody in Europe works as hard as we do, much less the japanese. I think the Europeans in general value working smarter, not harder. I don't think Europeans would find that description insulting, I think they like to think of themselves as smarter able to compete favorable with folks who waste their time and effort needlessly.

I think that description is true of Germany... I have no personal experience with the Greeks to judge.. I know the spanish even work less than the Germans... they have a culture of napping for a few hours in the middle of the work day... I mean come on.!!

Like you said, they work smarter....I dont see a problem with that, they are productive. The rice farmers in Vietnam have horribly low labor productivity, but they’re working very hard. In general, workers in high-productivity northern European countries (Netherlands, Denmark, etc.) work less, not more, than the people down south.

I dont think they should be judged by how long they work, but by how productive they are. What does Greece produce? Culture? Tzatziki?

[JMS]

^^^^^ Yes, Ive been to Germany and while I don't know the entire culture and its working environment Ive not often heard it said that Germans were lazy or stupid as you posted earlier.

I don't actually think they are lazy or stupid... Like I said they don't work much, and they have systemic stupidity built into their system.. It's very hard for me to believe anybody who has spent any time in Germany would not have witnessed this and know what I'm talking about.

German workers compete favorable with everybody in the world, so they are obviously not stupid and lazy...

Was just hoping you had something substantive to follow up with here. I guess I just haven't seen it asserted often in recent news that Germany was the problem country in this whole debacle when it came to their own economy and how it's impacted other EU nations.

And I have not asserted that here either.... Germany is the strongest economy in Europe. Not because their workers work hard, but because they are productive. There is no European solution to what ails the EU without Germany. German leadership's over reliance on austerity is doomed Greece to default, and Germany is ok with that. I think that's a mistake. We will see if Germany makes the same mistake in Spain, Italy, and possible France.

Germany think of themselves as a country, They really shouldn't. They need to recognize themselves as a piece to the greater whole. In the 1800's Texas for example was a net loss. The rest of the United States subsidized it. At times even up until the 1980's we've subsidized it. Overall though the United States is better with Texas having a strong economy. It's an investment the nation makes. One could make the same argument for California or most of the United States.... at times even presently. Germany has to embrace the big picture.....

Ultimately I don't think Germany will do this... I think the EU is destined to fail, and I think it's also destined to come back as a stronger entitiy after that failure, much as the United States Failed under the Articles of Confederation and came back stronger under the constitution.

---------- Post added June-11th-2012 at 03:22 PM ----------

Like you said, they work smarter....I dont see a problem with that, they are productive.

Germany is the economic power house of Europe, Not based upon hard work, long work, but smart work yeilding increased productivity....

I will also add that the most productive country in the world, Is the United States.. Which I really enjoy sharing with my German friends....

course our heavily automated agriculture industry is what makes the US worker so productive..

We win this every year..

http://www.foxnews.com/story/0,2933,295556,00.html

[Madison Redskin]

Greece is 4% of Europes GDP. It will not be a significant blip when they go under... Which is why they are not being thrown a meaningful lifeline.. Greece will fail, and nobody cares.

That's an incredibly poor measure of how meaningful the Greek economy is to the European Union. That's like saying, "Ehhh, Lehman Bros.'s debt is just a tiny fraction of the US GDP, so it doesn't matter if Lehman fails."

[No_Pressure]

Comparing the economies of the United States and Germany is an apples to oranges comparison.

We're a nation which is 3.75 times the population of Germany living on 27 times the amount of land they are. We have materials powers, and a relevant economic, political, and social history over the past 150 years which is completely different and impossible to compare.

Most productive, most hard working, most this and that. Those are titles which are unimportant. Germany does extremely well with what they have, and many of their people possess very admirable and unique traits or qualities just like you can find with all sorts of nations and cultures around the world.

It is as ignorant to describe their people as one specific negative groups of traits and compare them to us as it is to do so with the Greeks.

Also, I would point out that I certainly don't think that in an advanced society it is unreasonable to expect 38-40 hour work weeks (which the Germans and Austrians have) and five weeks of vacation time per year. In America we like to work longer than that and take less time off than that. We may get to claim the title of getting the most done or producing the most per person on the planet, but with that title we're still not clearly winning the race so to speak. We also have a lot of mental stress, stress related illnesses, health problems (such as obesity) and other chronic problems which are directly and indirectly associated with the hours we work and the type of occupations we have. We accept these things because our society encourages it.

The Germans and nations like them get along just fine in their society and they are well off in other areas as the result of certain practices they hold dear. What we call lazy they call healthy. What we call high taxes they call necessary. I'll tell you one thing, the infrastructure of Bavaria was way more impressive than Pennsylvania. Cleaner too. Oh and they had many more initiatives to save power or produce it more naturally. I saw a lot of windmills in Austria and a lot of solar panels in Germany. The escalators in the subway didn't move unless somebody was actually using them and Munich in particular was set up to encourage mass transit and bicycle transportation which I thought was funny from the home of BMW.

The point is for everything I just said you could make a counter argument about why you think its a bad thing, and yes I know there are those of you out there who think it is a bad thing for some reason to save energy or produce it by less environmentally damaging processes. There are those who would scoff at having a better infrastructure and say you would gladly take pot hole covered roads if it means not paying 40% of your salary to taxes. That is understandable, but the point is we're not the same. Apples and Oranges. I don't know which nation's practices will prove to be better in the long term, but if studying history has taught me anything I predict we'll both do just fine. As for the Greeks...well...who really knows?

[Teller]

That's an incredibly poor measure of how meaningful the Greek economy is to the European Union. That's like saying, "Ehhh, Lehman Bros.'s debt is just a tiny fraction of the US GDP, so it doesn't matter if Lehman fails."

That was my first thought too, but I fully admit to not being very well versed on what's actually going on here.

[deejaydana]

JMS, your earlier post that Germany should not think of themselves firstly as a country I think cuts to the heart of what's problemmatic with the EU on a fundamental/foundational basis. I understand the need for Germany to stake their moves on a greater good here but I also completely empathiZe for them as they look at Greece and possibly think to themselves "why are we working diligently when our neighbors aren't even ready to fix their clearly broken system." This doesn't even begin to address issues of national and cultural pride for every nation involved. Imagine the political fallout if Merkel tells her countrymen: "we're gonna take it in the shorts/pocketbook for the good of the EU!"

[Riggo-toni]

It's not a matter of if, just a matter of how soon. Hello drachma, hello inflation, goodbye investment.

[China]

An amazing mea culpa from the IMF’s chief economist on austerity

Consider it a mea culpa submerged in a deep pool of calculus and regression analysis: The International Monetary Fund’s top economist today acknowledged that the fund blew its forecasts for Greece and other European economies because it did not fully understand how government austerity efforts would undermine economic growth.

The new and highly technical paper looks again at the issue of fiscal multipliers – the impact that a rise or fall in government spending or tax collection has on a country’s economic output.

That it comes under the byline of fund economic counselor and research director Olivier Blanchard is significant. Fund research is always published with the caveat that it represents the views of the researcher, not the institution itself. But this paper comes from the top, and attempts to put to rest an issue that has been at the center of debate about how fast countries should move in their efforts to tame large debts and deficits.

If fiscal multipliers are small, countries can cut spending faster or raise more in taxes without much short-term damage. If they are large, then the process can become self-defeating, at least in the short run, with each dollar of government spending cuts, for example, costing the economy more than a dollar in lost output and thus actually increasing debt-to-GDP ratios.

That is what has been happening with a vengeance in Greece, where fund forecasters, as part of the country’s first bailout program in 2010, predicted that the nation could cut deeply into government spending and pretty quickly bounce back to economic growth and rising employment.

Two years later, the Greek economy is still shrinking and unemployment is at 25 percent.

Click on the link for the full article

[PeterMP]

China, I think that honestly could deserve its own thread. This ties not into just what happened in Greece and Europe, but what the US should do in terms of addressing our own debt.

[G.A.C.O.L.B.]

I took ONE Intro to Economics class so excuse my ignorance. I thought this was already common knowledge though? That austerity does negatively impact an economy? Or is this just the depth of the impact here that they're admitting to? Wouldn't it have been pretty obvious though considering like half (or w/e) of Greece's population is employed by the government?

(please note the question marks at the end of my QUESTIONS)

[mcsluggo]

that is true, GACOLB.... what teh article says is that the auserity not only hurt the economy (which is a "no duh") but it hurt the economy so much that austerity actually hurt the DEFICIT also (you raise taxes and cut spending...but the economy tanks so bad that revenues STILL go down and outlays STILL rise). It is kinda the old magical Reagan/Laffer curve, in reverse (Laffer is the one that said if you lower taxes, government revenue will go up, because teh economy will grow so fast that you will be taxing a larger base)

it turns out that Laffer was a load of crap... UNLESS looked at through the wrong side of the telescope

[Corcaigh]

that is true, GACOLB.... what teh article says is that the auserity not only hurt the economy (which is a "no duh") but it hurt the economy so much that austerity actually hurt the DEFICIT also (you raise taxes and cut spending...but the economy tanks so bad that revenues STILL go down and outlays STILL rise).

Is there a way to determine the 'fiscal multiplier' in advance? Using hindsight isn't exactly helpful.

[mcsluggo]

the imf (and others) estimated this before the austerity programs... the point of the paperwas to highlight that their estimates were wrong, and that this factor is much more important than (they) previously beleived. THis debate isn't new. MANY were arguing that this would be the case -- that excessive austerity would make matters worse

the poroblem is that people CORRECTLY want to attach conditions to these types of assistance programs, to ensure that the assistance doesn't just re-enforce bad behavior. The ideal conditions are to demand that Greece pursue a long run gradual shift to more austerity. However, future austerity isn't observable today (when the money is handed out) and leverage is gone at that point (in the future). So the the alternative is for Greece to really really double-dog promise to be better in the futue, if you will just give them money now.... which we know won't happen.

the IMF (and the ecb) is in a tough position ... but they could've done much better.