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A flawed Greek tragedy joke - but why?
Robert Court
Posted: 01 December 2011 20:02:27(UTC)
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I received this slightly amusing joke via email but it made me think:

"It is a slow day in a little Greek Village. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.

On this particular day a rich German tourist is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit. The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.

The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money and leaves town.

No one produced anything. No one earned anything. However the whole village is now out of debt and looking to the future with optimism.

And that, Ladies and Gentlemen, is how a bailout package should works! "

The above ONLY works if all the parties absolve the others of paying any interest for their credit.

Could it work in practice?

I don't know, but the injection of a massive interest free loan to pay off all debts and then repaid in full and all at zero interest (or accepting the debt paid in full and 'forgiving' the creditors previously agreed inteest - who knows?


Robert Court
Posted: 02 December 2011 07:58:40(UTC)
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My point is that if an individual or a country becomes insolvent (i.e. cannot servicetheir debts) it's far better to come to an arrangement to pay back the capital interest free rather than go bankrupt.

No takers?

If somebody owes you £10,000 and your contract states they have to repay you the £10,000 plus £1,000 interest wouldn't you rather have your £10,000 back and 'forgive' the 10% interest than receive absolutely nothing if that somebody becomes insolvent?

I believe the same should apply with countries and when western economies have reached this crazy point where just servicing the interest on debt costs many many millions of pounds each and every day I'd rather see a global sovereign debt amnesty rather than see economies go down the tube however foolish their governments were to get themselves into the present situation.

Clive B
Posted: 02 December 2011 11:06:53(UTC)
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Interesting question Robert.

I probably would accept just the capital if it was repaid instantly. I could make up the lost interest (hopefully) by using the money elsewhere. Not sure this applies to the Greeks etc, as they're in no position to repay instantly.

I might look at it differently if the capital (alone) was to be repaid over, say, 10 years. I'd probably reason -within the next 10 years you can get yourself sorted out and pay me the interest as well.
Robert Court
Posted: 02 December 2011 18:06:44(UTC)
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Clive B

If they can't afford to pay you back the interest and capital repayments as agreed then they are insolvent.

If they go bankrupt you get nothing.

If they pay back just the interest and not the capital you'll be waiting forever to get back your capital.

If they pay back just the capital you'll maybe get all your money back over time but could reinvest the money as it trickled in.

If by some miracle they were able to borrow the capital elsewhere at 0% on condition you accepted instant payment in full without any accrued interest as per your contract you'd accept willingly even if grudgingly.

A hard call apart from the last option?
Artemis Gorgo
Posted: 03 December 2011 11:57:02(UTC)
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Robert

your Greek example only works because it is a closed system and every body owes everybody else the same amount- everybody in the village owes everybody else E100. The tnet debt position is therefore zero and they can come to an accomodation easiliy.

In reality a country is not a closed system and everyone's net debt position is not the same in size.

The problem with Greece is that it cannot pay back the interest AND the capital amount on the existing debt. Even worse it it generating an ADDITIONAL debt requirement each year which it cant pay back as well. It is insolvent - but even oif it is forgiven its past debts, how does it finance next years borrowing need? The problem is not resolvable without full deafult on past debt AND massive austerity so there is no borrowing need next year.

It is hopeless without grants - any volunteers?
Robert Court
Posted: 03 December 2011 12:33:50(UTC)
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Once you declare yourself insolvent it is hard to borrow; once you are declared bankrupt the normal outcome is that you are not allowed any credit until you are back on your feet.

Maybe the Red Cross and other Aid agencies can help by doling out blankets and tents and food to those Greek pensioners when the government can nolonger afford to pay them their pensions?

Anyway, it's not only Greece that has this problem; it is just that Greece is the first to hit the headlines and most other EU countries are in danger of borrowing more than they can afford to pay and indeed mostly borrowing just to service their existing debts.

Until governments learn to live within their means this crisis shall continue until we all go bankrupt and then we'll all be free of debt and can again repeat the mistakes of history because we are just too stupid to learn from our mistakes.
dd
Posted: 03 December 2011 22:42:35(UTC)
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"If somebody owes you £10,000 and your contract states they have to repay you the £10,000 plus £1,000 interest wouldn't you rather have your £10,000 back and 'forgive' the 10% interest than receive absolutely nothing if that somebody becomes insolvent?"
This did happen in Latin America in the 1980s. The external (from debtor country) creditor banks did forgive either a proportion of capital or a large proportion of interest due to them. (They were given the choice because of different countries' accounting practices.) Generally the debtor countries had to follow an IMF programme to get economies back on track.
It was notable how the (wicked?) commercial banks did these deals forgiving either some capital or interest ... years before any such arrangement was made on the government to government debt.

I
Ian Craig
Posted: 20 February 2015 10:01:02(UTC)
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GrExit - Is it me or is all the talk of Greece bringing back the Drachma the silliest thing I've heard in a long while?

Why on earth would they do that? The much more likely option is that Greece is chucked out of the Euro-club, in that it can't issue Euros any more (and you can bet that'll have to be paid for); and continues to use Euros - just like Scotland was proposing to do, if the English chucked them out of currency union after independence. And then they'll default, which effectively guarantees a huge loan - but no new money.

The plans I've seen to re-introduce the Drachma require a huge amount of Greek co-operation - well, good luck with that. If I was Greek and not in personally in debt, I'd hang onto my Euros.

In-or-out of the Euro, Greece and every Greek are members of the EU; so I'm pretty sure that there's not much flexibility, or even possibility, of forcing Greeks to do anything.

Defaulting seems sensible. Who on earth was stupid enough to lend the Greeks money anyway? They need an urgent lesson. We just need to be extra vigilant that the debt isn't 'magic-ed' into state ownership - at least not without taking a very severe pound of flesh.
jeffian
Posted: 20 February 2015 12:00:46(UTC)
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As the thread started with a joke............

A very small and poor Italian village twins itself with a very small and poor Greek village. The Greek Mayor is invited to the Italian village, where he is picked up by the Mayor in a smart Mercedes limo, taken to a sparkling new Town Hall and then shown around the wonderful facilities of the village including a new tennis court, swimming pool etc. Amazed, the Greek Mayor asks his counterpart how he did it. "Well the European Union gave us funds to build that new dual-carriageway viaduct over there" says the Italian, waving his hand across the valley towards a single-lane bridge. "But that's not a dual-carriageway" says the Greek. "Exactly" replies the Italian, tapping the side of his nose and winking.

A year later, a reciprocal visit is arranged and the Italian is amazed to be picked up in a Maybach and taken on a tour of the most fabulous facilities.
Italian Mayor: "How on earth did you manage that?"
Greek Mayor: "Well you see that magnificent dual-carriageway bridge over there?"
Italian Mayor: "No"
BOB 2
Posted: 20 April 2015 11:23:20(UTC)
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The next milestone is the Eurogroup meeting in May , which will come just one day before Greece faces a payment of 780 million euros to the IMF.
If they default , i think the markets are in for a big tumble ,
BOB 2
Posted: 10 May 2015 21:21:22(UTC)
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The Guardian, latest GREECE
Greece and the eurozone face a week of fresh nail-biting uncertainty as the single currency area’s finance ministers prepare to report on progress towards an agreement with Alexis Tsipras’s government.

On Tuesday, Greece faces having to repay around €770m (£560m) to the International Monetary Fund (IMF). The two events had been widely linked. It was assumed that the cash-strapped Athens government would be unable to meet its obligations to the IMF without a cash-for-reforms deal with its creditors that would release more than €7bn.


Eurozone pins hope on long-awaited economic rebound
Read more
But last Wednesday Greece managed to scrape together €200m for an earlier instalment to the IMF. And the finance minister, Yanis Varoufakis, said it could avoid default this week, apparently regardless of whether there was an agreement.

In a desperate attempt to raise funds, the government last month told local and regional authorities and public bodies to hand over their spare cash to the central bank. But some have defied the order and the government has reportedly struggled to reach its target figure of €2.5bn.

Varoufakis was speaking on a tour of European capitals, part of a wider diplomatic initiative to win understanding for his government’s increasingly fraught position in advance of Monday’s meeting of the finance ministers.

The deputy prime minister, Yannis Dragasakis, saw the head of the European Central Bank (ECB), Mario Draghi. Tsipras, meanwhile, telephoned the French president, François Hollande, and spoke more than once to the head of the European commission, Jean-Claude Juncker.

Yanis Varoufakis. Facebook Twitter Pinterest
Yanis Varoufakis. Photograph: Gerard Julien/AFP/Getty Images
He also talked to the Russian president, Vladimir Putin, in what appeared to be a reminder to the rest of the EU that he had other options in the event of Greece being forced out of the euro. The Kremlin said Putin had confirmed Moscow would supply financing to Greek firms involved in a gas pipeline project.

The talks between Athens and its creditors have centred on the readiness of the Tsipras government – a coalition of radical leftwingers and populist rightwingers – to liberalise the economy. The Greek side has reportedly made concessions on harmonising VAT rates, improving tax collection and rebooting the country’s stalled programme of privatisations.

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But Tsipras and his ministers have drawn a red line in front of pension cuts and labour market deregulation (though the prime minister last week indicated that he was ready to discuss both issues). He has talked up the prospects for agreement, telling parliament at the end of last week that he expected a deal soon.

That is clearly not the perception of Greece’s creditors in the IMF, the ECB and other eurozone nations, represented in the talks by the European commission. Jeroen Dijsselbloem, the Dutch finance minister who will chair Monday’s meeting, said last week: “Lots of issues have to be solved, have to be deepened more, with more details.” Austria’s finance minister, Hans Jörg Schelling, told Reuters the negotiators did “not have anything close to a sensible solution”.

Against this ambiguous background, the exact tone of any statement released after the meeting will be crucial. Anything less than upbeat would redouble the pressure on the ECB to tighten its emergency lending to Greece’s commercial banks.

The banks provide collateral through a variety of assets, including government bonds. But, in view of Greece’s economic plight and the uncertain value of the banks’ assets, the ECB discounts the value of the collateral they put up by around 40%.

Wolfango Piccoli, of the political risk consultancy Teneo, said to ratchet up the pressure on the Greek negotiating team, the ECB could increase the discount. “Then, either the banks would have to find more collateral or the ECB would lend them less money. That is certainly a risk that is looming. It would make the life of the banks very, very difficult if it went ahead.”
UPDATE 11/5/15
• Brussels Group to meet at 2pm in Brussels for talks on Greece
• IMF reported to be drawing up contingency plans in event of default
• Greece faces €750m payment to Fund on Tuesday
• Athens markets open down 1pc
• Syriza government holds 9-hour emergency meeting promising not to cede any ground over "red line" reforms
• How the ECB became the real villain in Greece

Greece faces a €750m payment to the IMF tomorrow. This is the biggest single payment to the Fund it will have to make in a while, and it set to bleed the government's coffers dry.
Athens officials have told The Telegraph they will make the repayment, but are unlikely to have enough cash to continue making their obligations to their citizens by the end of the month.

update 11/5/15
The Greek government has made a payment order for about 750 million euros ($836 million) due to the International Monetary Fund tomorrow, according to two Greek officials familiar with the matter. More payments to the IMF and the redemption of bonds held by the ECB beckon between now and September, forcing Greece to constantly scramble for cash.
jolyon kay
Posted: 12 May 2015 09:01:45(UTC)
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I heard both these stories over 50 years ago! Plus ca change . . . .
Jolyon Kay
GElliott
Posted: 05 October 2015 13:19:22(UTC)
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I'm on this forum as a guest because I'd like to pick your brains, if you'll allow me.

I love the story at the start of this thread, which I've heard in various forms, and am in the process of producing a short film based on the same premise. It's an intelligent, stylish comedy and we're filming in December 2015.

We're looking for a City bigwig to appear in a cameo role in the film. We've already secured some big names from film & TV to star and I think it'd be great to have a little City in-joke hidden in the film.

All suggestions welcome!
Micawber
Posted: 05 October 2015 14:42:27(UTC)
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Try Fred the Shred, or Rob Terry, former CEO of Quindell. They owed a few city folk a bob or two, and might need the fee.
GElliott
Posted: 05 October 2015 16:13:11(UTC)
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Micawber;29593 wrote:
Try Fred the Shred, or Rob Terry, former CEO of Quindell. They owed a few city folk a bob or two, and might need the fee.

Good suggestions, but can we laugh with them yet? Too soon?!
jeffian
Posted: 05 October 2015 16:35:20(UTC)
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It should probably be someone from Goldman Sachs, whose scheme to massage the Greek economy into compliance with eurozone rules was pretty much in line with the original joke above, but I doubt they would want to be in on the joke.
Micawber
Posted: 05 October 2015 16:56:09(UTC)
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Ed Balls? Alastair Darling? (both believed available)
Micawber
Posted: 05 October 2015 16:57:22(UTC)
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GElliott;29595 wrote:
Micawber;29593 wrote:
Try Fred the Shred, or Rob Terry, former CEO of Quindell. They owed a few city folk a bob or two, and might need the fee.

Good suggestions, but can we laugh with them yet? Too soon?!


The question is rather: "Can they laugh with us?"
GElliott
Posted: 06 October 2015 12:46:17(UTC)
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Wondering if there are any heroes of the piece - or all they all villains?
Recently Redundant and Retired
Posted: 07 October 2015 07:55:04(UTC)
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GElliott;29602 wrote:
Wondering if there are any heroes of the piece - or all they all villains?


Neil Woodford ?
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