A trip to the Peloponnese

The IMF is being kind, in that it's been obvious for a while that the choice is default within the Euro, or exit from the Euro (which would basically mean default).

The vote for Syriza was a vote for default within the Euro, which is at least a viable option - with serious reforms as a quid pro quo. The problem is the way Germany is acting, which is to throw both possible options off of the table in favor of basically acting like a doorstep lender 'Give us everything you can today and we'll be back tomorrow'.

["default within the Euro" isn't obviously viable. Greece defaults, loses access to all external financing, can't print its own money, and so has no money left. Ad is therefore f*ck*d. Did you have some other plan? -W]

Either cut the interest rate to zero and extend the due date to 2030 or later or forgive a large part of the debt to get it down to where it can be serviced. At this point all the "new" loans go to pay off the old ones, e.g. the Germans are lending themselves money while increasing the Greeks debt.

There are guys down by the package stores that offer better rates than the EU is giving the Greeks, but the net effect is the same

[I think you're wrong. Most of the loans already have long dates, low rates, and payment holidays -W]

Well, until the recent fun and games, Greece was actually running a primary surplus, so a full default would have removed any need for external financing.

[The primary surplus disappeared before the election, when it became clear in the run-up that paying taxes was becoming optional again. Anyway, wishing for the past doesn't help now -W]

Not that a full default would be required or desirable - by definition this would be an arrangement within the Euro, effectively giving something like 70% debt relief in return for full structural reforms; a deal that might actually bring the crisis to an end. A keen observer might notice that the current approach - 5 years on and counting - has no end in sight. One debt rollover after another after another, each time with more economy-shrinking austerity.

[Hold on; you're changing the meaning of words. A default is where one side stops paying, without the agreement of anyone else. You said "The vote for Syriza was a vote for default within the Euro" - but Greece can't vote for that if other people disagree. And the other people do disagree. What you're calling "default" is actually agreed debt relief, which is totally different -W]

The reason they are not allowed the default option is because it might encourage others. Which is somewhere along the scale from childish to outright disturbing depending on your natural level of paranoia; economically sound it isn't.

And as regards the external financing argument.. the problem with the markets is not that they lock countries out, it's their goldfish-like memory when it comes to default (What, Greece? Credit Risk? Shurely some mistake!). It might be an issue for 6 months, but that would be covered as part of the deal.

Off topic ... isn't it time for the annual birthday card for Watts's paper? It's been "forthcoming" for, what, three years now?

[I've stopped even reading the headlines at WUWT, and I've almost stopped reading Sou mocking WUWT. But I suppose I might make an exception for the blessed day. See http://scienceblogs.com/stoat/2015/05/29/comment-fakery-at-wuwt/#commen…, BTW -W]

But I suppose I might make an exception for the blessed day. See http://scienceblogs.com/stoat/2015/05/29/comment-fakery-at-wuwt/#commen…, BTW
Thanks for the pointer. So, as of two months ago, still no indication that the paper has actually been submitted anywhere ... the explanation is just "writing takes a long time" not anything about the review process etc.

It's been 3 years since the first draft. His previous paper, Fall et al 2011, was about 9200 words. If this new one is similar in length, the second draft is taking about 1 day per 8 words. Chimpanzees with typewriters could produce text faster than that.

>"[I think you’re wrong. Most of the loans already have long dates, low rates, and payment holidays -W]"

It was a pretty short payment holiday so far.

"Since 2010, the Athens government has been reliant on two EU-IMF bailouts totalling €240bn"
http://www.bbc.co.uk/news/world-europe-32332221
(out of 300bn so that is a large majority and not sure terms of latest bailout agree yet.)

https://en.wikipedia.org/wiki/Greek_government-debt_crisis#Second_Econo…
"The next day the eurozone countries and the International Monetary Fund agreed to a three-year €110 billion loan (see below) retaining relatively high interest rates of 5.5%"
...
"euro area leaders agreed to extend Greek (as well as Irish and Portuguese) loan repayment periods from 7 years to a minimum of 15 years and to cut interest rates to 3.5%."

3 years wasn't long but if it is all now at least 15 years that is heading out towards upper end of medium if not already long.

"At this point all the “new” loans go to pay off the old ones"

Well the primary deficit is being cut ( 'Eurostat's standardized method, set it at 15.7% of GDP' in 2010) and there are plans for 3.5% primary surplus by 2018. Trouble is GDP keeps shrinking so that any planned primary surplus is likely to turns out as a further deficit certainly this year.

Meanwhile http://www.bbc.co.uk/news/business-33774760
"Major banks were close to the maximum 30% declines they are allowed in one day, a limit that was hit on Monday."

Presumably that is getting near 50% value of banks wiped out since they closed. I expect they lost a bit more with closure anticipated a few days before the actual closure of banks and stock exchange.

Not too surprising as the banks need recapitalising so shares will be issued to government diluting current shareholders share of the banks. But there is also extra bad debts from struggling businesses while banks were closed as well as loss of cash handling fees, impact of capital controls, and other consequential effects.

Looking at banks value for indications of further gdp shrinkage is probably unfair. Nevertheless some of the effects will flow though to further gdp shrinkage as will weath effect on spending. So it seems practically inevitable further gdp shrinkage will occur meaning that primary surplus targets won't be reached for a while yet.

From -15.7% to still negative this year might still be regarded as progress towards being able to service some debt.

[I'm told (by the FT) that the Greek stock market is quite small; not just in abs terms, but as percent of economy. If true, that would make the stock market falls more of a symbol than the disaster they would be if done here.

Meanwhile, Greek bond yields have actually *improved* today (http://www.investing.com/rates-bonds/greece-10-year-bond-yield) -W]

Well.. I'd regard debt relief and default as basically synonymous, no lender is exactly thrilled. But that's semantics.

If the Greek people vote for 'Debt Relief (Partial default) as part of a package', and the Troika (Or more realistically Germany) says 'No, more of something that has already failed repeatedly to make an example to others.', who is the unrealistic one?

It would have been reasonable for a debt relief deal to have been made. It would also have been reasonable for Greece to be told 'No, you have to leave the Euro'. I do not see 'No, and we're going to give you the economic equivalent of a kneecapping for even asking' - the ECB cutting off the Greek banks - as being reasonable.

Andrew Dodds said
"Well, until the recent fun and games, Greece was actually running a primary surplus,"

IMF says ( http://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf )
"The 2014 primary fiscal balance fell short of the program target by 1.5 percent of GDP." And the target for 2014 was 1.5% of gdp. So that doesn't look like much of a primary surplus if any.

Also noteworthy
"The medium-term implied interest rate (accrual
basis) fell from 3.3 percent to 2.3 percent"
Greece couldn't borrow money at 10% or even 15% on open market so knocking it down to 2.3 is a substantial form of agreed debt relief.

Where did you stay?

[Various. See http://wmconnolley.blogspot.co.uk/2015/08/the-peloponnese-2015.html (a work in progress) for some info -W]

Great trip. The "eye in the wing" is a seraphim. The icon at the top of your post is of the archangel Gabriel.

So. Let's suppose that a large part of the debt is forgiven, or is extended to a very long maturity at zero or low interest (which in economic terms is the same thing). What's to prevent a replay of the same events in 10 years or so? Are their realistic prospects that Greece will make meaningful structural reforms? What's their incentive for doing so?

These aren't rhetorical questions -- I'm asking as an Ignorant AmericanTM who wants to understand. Pointers to background reading would be welcome.

[Your question alludes to my unstated position, which is that with or without debt relief, Greece needs structural reforms, or it turns more and more into a place with a great history, where people go on holiday. Perhaps Ricardo on comparative advantage would suggest that is the correct solution, but I'm dubious. As to the chances for reform: I wouldn't write it off. There are huge barriers because large numbers of them benefit from the rent-seeking in the present system. But there are plenty of hard-working dynamic Greeks who would like better -W]

So how about a cruise, for your next vacation?
http://scienceblogs.com/insolence/2015/08/14/the-woo-boat/