Cyprus-Forum.com

[Oceanside50]

And Greece will outdo Cyprus in no time, outside of the Eurozone.

We'll talk again in 2 years time.

What you do not understand is the fact that if Greece Defaults, is kicked out of the Eurozone, then their economy will then overheat and transition into its own little bubble.

If that happens, the entire OECD will be eating Greece's dust.

in reality, they would have to develop a manufacturing industry, i guess. If no country will accept a drachma where do you buy essentials? energy, pharmaceuticals, toilet paper? econ theory says you build a plant and produce such as Germans did after ww1, where things like biodiesel were developed because they couldn't import. Could this happen to Greece?

[Pyrpolizer]

It's not a question of who needs Drachma. Who needs Turkish Lira, or Arabian Dinar or the so many currencies around the world anyway? Only the locals need them. So the Drachma's value will be what the locals set it to be e.g 1 drachma=1 night at a hotel in Greece.
The hotel in Greece then wants to import 10 barrels of petrol.Gives 10 drachmas to a merchant.The merchant goes abroad and says here's 10 drahmas, give me 10 barrels of petrol. The foreigner says "what's this i don't need drachmas, they buy nothing". The merchant says "no they buy 10 nights at a hotel in Greece". The foreigner says "Oh, really, then fine I have a friend who needs 10 nights at a hotel in Greece", but I have to gain something so here's 7 barrels of petrol.
This is the way things will start and slowly slowly the Drachma will get it's true exchange value, like any other currency.

@ nikitas:
Your mortgage will also be transformed to drachma at a fixed exchange rate. It's your salary that will loose purchasing power.
You talked about your kids studying abroad right? Do you know that 1 out of 2 of your kids will be unemployed for eternity after completing their studies?
What do you prefer 30% of the Greek people sitting idle all day doing nothing FOR ETERNITY, or a devaluation of the Drahma by say 30% and practically zero unemployment?

On the other hand I agree with you, we all got trapped in this Euro, they have us well tied up, it's not easy to break away.

[Oceanside50]

It's not a question of who needs Drachma. Who needs Turkish Lira, or Arabian Dinar or the so many currencies around the world anyway? Only the locals need them. So the Drachma's value will be what the locals set it to be e.g 1 drachma=1 night at a hotel in Greece.
The hotel in Greece then wants to import 10 barrels of petrol.Gives 10 drachmas to a merchant.The merchant goes abroad and says here's 10 drahmas, give me 10 barrels of petrol. The foreigner says "what's this i don't need drachmas, they buy nothing". The merchant says "no they buy 10 nights at a hotel in Greece". The foreigner says "Oh, really, then fine I have a friend who needs 10 nights at a hotel in Greece", but I have to gain something so here's 7 barrels of petrol.
This is the way things will start and slowly slowly the Drachma will get it's true exchange value, like any other currency.

@ nikitas:
Your mortgage will also be transformed to drachma at a fixed exchange rate. It's your salary that will loose purchasing power.
You talked about your kids studying abroad right? Do you know that 1 out of 2 of your kids will be unemployed for eternity after completing their studies?
What do you prefer 30% of the Greek people sitting idle all day doing nothing FOR ETERNITY, or a devaluation of the Drahma by say 30% and practically zero unemployment?

On the other hand I agree with you, we all got trapped in this Euro, they have us well tied up, it's not easy to break away.

Pyrpo you're simplification of the problem is comprehensible, but a problem arises when the merchant on the other side doesn't need or want a vacation in greece,and Greece is trying to find pharmaceuticals, what else does greece have to offer?....

[Oceanside50]

This may be a better alternative

Yes, Greece should never have joined the euro. But what about today? What is their best option? A letter written by 13 distinguished (Greek?) economists (including one Nobel Prize winner) is highly critical of the Syriza approach, and instead calls for neoliberal policy reforms. Here’s an excerpt:

A Grexit and move to a new drachma would be a complete disaster for Greece. The banks would collapse as depositors would withdraw their euros not knowing whether they would be able to withdraw them later and at what exchange rate.

. . .

What would be crucial elements of a good agreement? Besides the fiscal issues of balancing the budget and making pensions proportional to contributions, a good agreement should emphasize microeconomic reforms. It should greatly simplify the procedures for running a business in Greece and reduce business taxes, in order to attract investment and create a productive, export-oriented sector, new jobs, and debt-repayment potential. It should reduce the huge and inefficient state sector that weighs down on the private sector and the taxpayers. The procurement mechanisms of the state should become competitive. Greece should proceed with privatization of trains, airports, ports, and the energy sector. The “closed sectors” of the economy (such as pharmacies and transportation) should be opened to competition. The labor market should be liberalized and the state should crack down on the underground economy that pays no taxes and no pension contributions.

Finally, an agreement must restructure the Greek sovereign debt to European countries and the European Stability Mechanism. Keeping the nominal value constant, the best way to restructure the debt is to elongate its maturities. If maturities are moved to 75 years and the presently variable interest rates are converted to fixed ones and slightly reduced, the net present value of the debt will be reduced by 50 percent. A 10-year grace period (during which interest is not paid but recapitalized) with the money saved invested would promote growth.

Growth is, in fact, the only guarantee that Greece will pay its debts.

[Pyrpolizer]

Pyrpo you're simplification of the problem is comprehensible, but a problem arises when the merchant on the other side doesn't need or want a vacation in greece,and Greece is trying to find pharmaceuticals, what else does greece have to offer?....

The market is a circle my friend. Let's keep it simple: Suppose there is demand all over for medicines. who is going to import them? Some big company that already has millions of deposits abroad. But let's make it more difficult:Assume a small company whose money in euros have all been converted to Drachmas. Drahmas is all the locals have in trading with each other. So how is he going to find Swiss Francs to import medicines from Switzerland? There comes a guy from Switzerland bringing a suitcase with Swiss francs who wants to buy a holiday home in Greece. The merchant happens to have a holiday home for sale.The Swiss guy buys that holiday home from that specific merchant. Supposedly the price was in Drachmas by the Swiss guy paid with Swiss Francs. The other day the merchant goes to the bank and pays cash in Swiss Francs. Within 3 days he has the medicines he needs by Airfreight and starts selling making profit. With that profit he buys 2 holiday homes waiting for next Swiss guy to arrive.
I m sure you got the point.
Obviously in the beginning there will be difficulties. But notice we are at the heart of the Tourist season. A lot of foreign exchange is expected to be in merchants' hands during the Summer. By the end of the summer I expect the situation to normalize and the drachma to get a stable exchange rate, devaluated of course by some 30%. I am not talking nonsense about this 30%. I have seen studies more than a month ago.

[Pyrpolizer]

What would be crucial elements of a good agreement? Besides the fiscal issues of balancing the budget and making pensions proportional to contributions, a good agreement should emphasize microeconomic reforms. It should greatly simplify the procedures for running a business in Greece and reduce business taxes, in order to attract investment and create a productive, export-oriented sector, new jobs, and debt-repayment potential. It should reduce the huge and inefficient state sector that weighs down on the private sector and the taxpayers. The procurement mechanisms of the state should become competitive. Greece should proceed with privatization of trains, airports, ports, and the energy sector. The “closed sectors” of the economy (such as pharmacies and transportation) should be opened to competition. The labor market should be liberalized and the state should crack down on the underground economy that pays no taxes and no pension contributions.

Finally, an agreement must restructure the Greek sovereign debt to European countries and the European Stability Mechanism. Keeping the nominal value constant, the best way to restructure the debt is to elongate its maturities. If maturities are moved to 75 years and the presently variable interest rates are converted to fixed ones and slightly reduced, the net present value of the debt will be reduced by 50 percent. A 10-year grace period (during which interest is not paid but recapitalized) with the money saved invested would promote growth.

Growth is, in fact, the only guarantee that Greece will pay its debts.

I agree to nearly everything. Going back to drachma without all those reforms, without reducing the huge State, will not enable Greece to stand up again. Without these Greece will be back to square 1.
The question is are the Greeks brave enough to say OXI to Euro and YES to deep reforms?
Judging from the fact that 2 weeks ago Tsipras re-opened ERT1, and just 2 days ago he re-employed 400 cleaners from the Ministry of Finance who were let off 2 years ago, I would say Tsipras is only good for the OXI. Someone else is needed for the reforms.

[Cap]

I agree with Pyrpo.
And even Kuru had the common sense to bring up the fact that Greece needs to start producing in order to become competitive in international markets.
The economy was a shambles pre Euro, in the 80's huge inflation something like 25% and huge debt, it sort of stabilized in the 90's and then they cooked the books to be let in the Euro thus exasperating the problem.
It all became evident during the global financial meltdown.
GiGs on the other hand (God bless her heart) is unwittingly trying to bury her country behind propaganda and anti EU rhetoric masking the problem which is for the most part internal.

[GreekIslandGirl]

GiGs on the other hand (God bless her heart) is unwittingly trying to bury her country behind propaganda and anti EU rhetoric masking the problem which is for the most part internal.

I'm not anti EU. I'm the one who has supported going the whole hog and having a United States of Europe.

But, I am against the bankers who have sabotaged the Union. Especially the IMF. They are the destructive force and I was hoping Syriza would be strong enough to oppose the bankers fully.

[Jerry]

Here's what a Greek expert has to say on the subject. As has been already said in the long run Greece should hope for extending the debt repayments and reducing the interest rate in the hope that inflation and an expanding economy will reduce repayments to a manageable proportion of GDP.

Greece's cash trap - Dimitris Katsikas, Hellenic Foundation for European and Foreign Policy

The economy is frozen and we're in a liquidity trap, where everyone wants to hold euros.
Investment is non-existent and consumption has collapsed.
People have stopped submitting tax income statements and with the banks closed the government cannot receive anything. Supermarkets don't know what to do with the cash they receive.
We are not in the eurozone bailout programme so the European Central Bank cannot increase funding to the banking system.
Credit agencies have reduced the ratings on Greek banks so they're almost junk and even if they have collateral to give they may not be able to get new funding. Plus, we are essentially in default of the IMF.
Even if there is a deal, capital controls will be here for some time because there would be a rush on the banks if they re-opened.
An interim solution would only calm the symptoms of the crisis. Under a more permanent deal difficulties would remain for some weeks.

[Get Real!]

Greece produces plenty of products for export so that’s not the problem. The problem with Greece is the very common income vs expenditure mismanagement.

Income - money coming in

Expenditure - money going out

Every country must strive to always keep its income higher than expenditure even if it means raising the prices of all imports to astronomical levels.

A government that fails to produce a surplus at the end of the financial year has technically failed from the economic perspective and should be accountable. Mechanisms for financial accountability should be introduced where they don‘t exist if we are to seriously fight financial mismanagement.

Many individuals mismanage their finances all the time; they max their credit cards and barely make their monthly repayments. Everything they purchase on credit costs 2-3 times more than it would have had they paid for it with their own money.

Not living within your means is a social sickness that requires a cure. The cure is guidance to sound financial management from an expert.

Greece not only needs a rescue package but sound financial guidance and mechanisms to ensure that such catastrophes never happen again.