Greece.What happens next ?

[Leekbrookgull]

So what would happen if we paid cash for everything ?

 

[Leekbrookgull]

Banks would go Bust ?

 

[HovaGirl]

So what would happen if we paid cash for everything ?

Then you buy what you can afford and no more. Those who have no cash, will have to find other ways of acquiring the necessities of life (food, housing, heating). Some might barter for it. Some might fight for it. Some might steal it.

 

[HovaGirl]

Banks would go Bust ?

Yes, banks would go bust. It is already recommended not to leave your money in a Greek bank, but remove it. If enough people start doing that (and they have), then that is called a "run on the banks". It gets to a point where the bank has no money left. This is exactly how the Great Depression started in 1929. People were afraid their banks would run out of money, so they dashed off in huge numbers, and took their money out. A self-fulfilling prophecy, really. Greek banks will run out of money, because people will start hiding their cash under their mattresses. But I don't think it will stop there. The same will happen in other countries. During the depression, in Germany, money became so worthless, people would literally take whole wheelbarrow-loads to buy a loaf of bread. Wars are great revenue-producers.

 

[Triggaaar]

Isn't part of the problem the fact that the tax collection system is inadequate and too much tax goes unpaid?

I haven't been reading up on Greece since their problems were first reported, and what really struck me was how much the public expected for nothing, and how decades of governments have been happy to take their salary (+benefits) without addressing the problems (knowing that addressing the problems would cost them their job). It makes me less upset by the cuts we're seeing in our country, knowing that we are facing up to our problems, rather than hiding/postponing them.

Most people think that house prices rising in excess of inflation is a good thing, so that they make money. But (following on from Hovagirls point), money is only a token to represent value. Therefore, what's creating this increase in 'wealth'; what have people done to accumulate this wealth? Nothing. So who's paying for it? The future generations are getting into debt to pay the older generation a big lump sum.

It can't go on.

I hear what you're saying, but it is economics pushing up house prices, not just that we want to get a big lump sum from future generations. Like you say, it can't go on, and I'm sure it won't. It's not that house prices are way over-priced, they used to be too cheap (because people, eg single people, couldn't get mortgages).

Property must be the only thing that people buy and expect to increase in value. If you buy a new car you don't expect it to be worth more in 5 years time, you accept the fact that it's going to be worth less. If you buy a brand new freezer you don't anticpate selling it for more than you paid for it down the line. Why are houses any different? I'm no economist but I'm sure that part of the problem is the whole concept of a property "ladder" - people in this country buy houses to try and make money, rather than buying houses as places to live in.

Property isn't some scam or idea though, there is good reason why houses are different. You fridge and car will be scrap in 20 years time, but your house will still be good in 100 years time, and the land you own will be there forever. It's reasonable to expect property to rise in line with inflation (ie, not increase in value at all). There will then be other factors that cause prices to increase, eg:
the quality of the houses - although there are some poor builds, modern houses cost a lot to build, due to much stricter building regs. And lots of old houses have had a lot spent on their kitchens, bathrooms etc.
low interest rates - it's basic economics that lower interest rates (with available credit) will mean more expensive houses, of course prices will go up. But that price rise doesn't cost future generations, they'll be paying the lower rates or prices will fall.

One of the things which has recently been hit on the head in Greece, is the idea that an unmarried daughter can collect her father's pension after he has died, for the rest of her life.

Wow, it's like the dark ages.

Up till now, the Greek state pension has been a final salary pension. Suddenly, 5 years before he retires, the Greek is given an enormous pay rise, which, of course, boosts his pension. That, too, has been hit on the head, and is one of the principal reasons that Greeks have taken to the streets. The other reason is that the State-sector retirement age has risen from about 55 to 60 (or 65?). Greeks love sitting around in cafes dissing the Government. They won't be able to do that if they have to carry on working for another 5 or 10 years. Also, more often than not, State-sector jobs are undertaken by two or three people for every one job. Most of them spend their time avoiding doing any work. Jobs for life, so they'll never be sacked, but that is changing, too. Some are being laid off, to cut state spending. They don't like it. They've been having a ball, but the party's over. Few of them realise it, though.

That's how I've understood it. Someone needs to be tough on them, and explain the facts of life. It should be a nice and simple lesson:
This is what it costs us to get a baby to an adult
This is what the adult pays in tax
This is what it costs to look after you when you're retired
(+ cost of running the country etc)
These figures have to balance

I do feel for individuals that had no idea (and no way of knowing) they were all at a mass piss-up. But f***ing hell, der!

 

[Triggaaar]

With interest rates still low for mortages,yet APR on cards is still high,why apart from they own your house ?

Because they can. There are adverts on tv now to borrow money for a few days, with interest rates of a thousand or something daft. WTF! People are that f***ing stupid, they must be paying it. They charge it because they can. Got a gas bill you can't pay until pay day? Phone them and tell them, it won't cost a penny - or borrow the money for a week and pay through the nose.

 

[Lord Bracknell]

During the depression, in Germany, money became so worthless, people would literally take whole wheelbarrow-loads to buy a loaf of bread.

... and the price of a loaf of bread would be enough to pay off the outstanding debt on your house.

 

[Triggaaar]

Yes, it's the concept that property prices must rise, which makes them rise.

To suggest the only reason that property prices rise is because there's a concept that they should is nonsense. So should the average house price currently be about £50k, even though it costs more than that to build them? And what value is a house - taking the rental market as an example, people have jobs and earn money, then choose what to spend their disposable income on - holidays, clothes, the pub etc. Many decide to put a good chunk of their money towards renting a nicer home than the basics they need, and that pushes up prices. With current interest rates and available credit, it would be daft for house prices to be at WWII levels (index linked).

Greek banks will run out of money, because people will start hiding their cash under their mattresses. But I don't think it will stop there.

How far are you thinking it will go?

 

[HovaGirl]

To suggest the only reason that property prices rise is because there's a concept that they should is nonsense. So should the average house price currently be about £50k, even though it costs more than that to build them? And what value is a house - taking the rental market as an example, people have jobs and earn money, then choose what to spend their disposable income on - holidays, clothes, the pub etc. Many decide to put a good chunk of their money towards renting a nicer home than the basics they need, and that pushes up prices. With current interest rates and available credit, it would be daft for house prices to be at WWII levels (index linked).

How far are you thinking it will go?

At the moment, rental prices are soaring, because there is a glut of people needing to rent. TV progs have encouraged a fashion for buy-to-let, with "ordinary people" owning hundreds of properties which they rent out. Mortgages for "buy-to-let" are still easy to find, if you have a huge deposit (bank of Mum and Dad?), because they will only lend you a fat percentage less than what you would receive in rent, meaning, the income from the rental of these properties, is used to actually pay for the properties. These "buy-to-letters" have done two separate things. First, they have helped to push prices up during the past decade. Second, many of them have split single dwellings into one or more dwellings. Many 3-bed semis have been converted into two flats and many larger houses have been split into 3, 4 or even 5 flats. At the same time, families have been splitting up into several units, between divorce, and unmarried kids needing to move out. So smaller families have been moving into smaller units, hence the never-ending supply of tenants.

A property is only worth what a buyer will pay for it. If prospective buyers don't have the cash or can't raise a high enough mortgage, then they can only buy whatever they can afford, or can't buy at all. If the first-time-buyers can't buy somewhere, this means the second-time-buyers can't move on. House prices will only settle down, once the first-timers start getting back on the property market. If a 30-year-old is on 30k, with his girlfriend only on, say, 16k, then their mortgage can only be about 110k. There are very few properties available in Brighton at that price, particularly if the young couple has children, which makes "studios", "bedsits" and one-bed flats useless for them.

When interest raise eventually do rise (and they must, eventually), and when the repossessions start really kicking in (the lenders are doing their best to prevent that, at the moment), then the number of prospective buyers will drop, at a time when the number of properties available to buy, will rise. That is when property prices will begin to really drop, until it settles at a level where young people can actually afford to buy again.

 

[cannedheat]

I don't think the Euro will collapse however there will be some major changes to it, thank christ we never joined.

 

[larus]

I don't think the Euro will collapse however there will be some major changes to it, thank christ we never joined.

There has never been a currency union that has ever succeeded. The only union which can succeed is a fiscal union, i.e. like the US.

 

[Norman Potting]

What a dismal thread!

We have friends who have a property in Greece, from what the say there is a huge "Black" economy hence the saying that I heard from somewhere that Greece is a poor country full of wealthy people. Coalition/minority governments seem to be the norm, whoever is in power makes an attempt to bring in the unpopular measures to sort things out, everyone strikes, the opposition don't support the measures, the government changes but the problems stay the same. Apparently.

 

[sten_super]

HovaGirl, what you say about the Greek economy mirrors a lot of what I've heard in a professional capacity about the state of the economy. The Greeks have had it good on the (government's) credit card for a long time, and don't like that this is coming to an end. There is a great feeling of disaffection in Greece - they blame the government, the IMF, the Germans, everyone but themselves for the state they are in.

Fundamentally their debts are now at such a level that a 'credit event' (i.e. some kind of restructuring or default on debts) is inevitable. However the IMF have played hardball with Germany to ensure that they can fund another bailout for the Greeks; all they are doing is 'kicking the can down the road' (delaying the inevitable) but the reason for this is to give the banks more time to shore up their balance sheets and sooner or later actually price in the Greek haircut onto their balance sheets. This should prevent a 'European Lehmanns' which is what everyone fears, and should prevent contagion; the big risk remains the Spanish banks which hold a fair bit of sovereign debt - if these collapsed the Spanish banks could not cover their losses and then there would be genuine problems as the bailout would be truly massive, probably beyond the scope of the EU unless they started printing money (which would in itself be disastrous).

 

[colinz]

When interest raise eventually do rise (and they must, eventually), and when the repossessions start really kicking in (the lenders are doing their best to prevent that, at the moment), then the number of prospective buyers will drop, at a time when the number of properties available to buy, will rise. That is when property prices will begin to really drop, until it settles at a level where young people can actually afford to buy again.

I agree the last major housing collapse in the late 80s/ early nineties, was due to the combination of high double digit interest rates & high unemployment.
Anyone undertaking a large mortgage now is basically gambling, that interest rates will remain low.
It wouldn't surprise me if monthly mortgage repayments at todays house prices & interest rates, are indeed similar to those of 20 years ago, when house prices were a lot lower, but interest rates a lot higher.
I predict an engineered property collapse

IMHO the problem with Greece (Portugal & Spain), is that they absorbed themselves into the economies of the North European heavily industrialised countries.
Greece, Portugal & Spain just don't have the manufacturing base to lift their GDP.
If you live in those countries why would you spend all day in a factory, when you need bugger all to live on.
A bit of fishing & a part time shift at the local taverna, is enough to bring home the bacon.

 

[SULLY COULDNT SHOOT]

Would be interested to hear Stu82s take on this.

Although I am sympathetic to Hovagirl's view its a bit too simplistic and western-centric. Before 2002 Turkey was considered one of the weakest economies ın Europe but yet in the last three years its been one of the strongest. Why? Because it had its banking disaster in 2002 and put in checks and measures to stop it happening again so hen everyone else got hit they emerged relatively unscathed. Also, Turkey doesnt rely on one conjoined set of economies for its wealth. Finally it hasnt given up its core industries in an effort to merge with others. Dont get me wrong... theres a lot wrong in Turkey but I dont think we're reaching the Dark Ages. I just foresee a re-alignement and a change in the way economies are run... and the big losers would be those who are afraid to change because they never had it so good.... looking at the big Europeans and the US.

Suspect Russsia may hold many of the keys now.... Turkey and Russia are already talking about their own union, especially as the EU are still spitting in Turkey's eyes and the rumour on the street is Greece is now flashing its lashes at Turkey... despite all the history the two economies complement ecah other and a trade union would make sense. Not good news for Southern Cyprus though.

Let's see.

Another question for those who want to look at the bigger picture might be why is Poland still growing and gettign stronger? 16 years growth is a phenomenal achievement and almost unaffected by the credit crash. The simple conclusion I make is that all the relatively unscathed economies are in countries where the private sector was NOT allowed to run itself .. where the State had the final word.... if this is correct then a conservative-led UK government is a recipe for disaster as the criminals are going to be allowed to run free....however this last point is my own opinion and just speculation.

 

[SULLY COULDNT SHOOT]

HovaGirl, what you say about the Greek economy mirrors a lot of what I've heard in a professional capacity about the state of the economy. The Greeks have had it good on the (government's) credit card for a long time, and don't like that this is coming to an end. There is a great feeling of disaffection in Greece - they blame the government, the IMF, the Germans, everyone but themselves for the state they are in.

Fundamentally their debts are now at such a level that a 'credit event' (i.e. some kind of restructuring or default on debts) is inevitable. However the IMF have played hardball with Germany to ensure that they can fund another bailout for the Greeks; all they are doing is 'kicking the can down the road' (delaying the inevitable) but the reason for this is to give the banks more time to shore up their balance sheets and sooner or later actually price in the Greek haircut onto their balance sheets. This should prevent a 'European Lehmanns' which is what everyone fears, and should prevent contagion; the big risk remains the Spanish banks which hold a fair bit of sovereign debt - if these collapsed the Spanish banks could not cover their losses and then there would be genuine problems as the bailout would be truly massive, probably beyond the scope of the EU unless they started printing money (which would in itself be disastrous).

Thats a very good overview..... the problem I think is that a European Lehmans is inevitable... the question only is in the timing and the magnitude.... the horse bolted years ago, there really is no point in trying to shut the barndoor.... hence my belief that it is the countries who are least likely to be affected who will become the leading economies and the re-alignment.

 

[Norman Potting]

Spanish Bank problems, how would this place Santander?

 

[beorhthelm]

With interest rates still low for mortages,yet APR on cards is still high,why apart from they own your house ?

the security of your home is a huge factor. you are far less likly to default, and if you do they have an asset, so they can offer a low interest. people default alot on CC debt which means they charge more just incase you do. this is why Greece is paying 17% on its medium term bonds and 30% on its short term bonds, investors are expecting a default so want suitable reward for the risk.

but theres also the pragmatism of making it worth their while. if you borrow £100 for 5%, you get 41p if you pay off a month later. theres admin and over heads to consider.

So what would happen if we paid cash for everything ?

not only would banks have no purpose, we would no further industrial and techological advancement. industry relies on capital investment to build and construct things, with a view to paying it off over the life of the factory, machinery. this was true before banking, with wealthy private investors supplying the capital. banking means anyone with some surplus cash can become an investor and contribute to the growth of the nation, in return for some interest. its no coincidence that the Islamic nations, in which interest is prohibited, having been so advanced in science stopped developing several hundred years ago, around the time we started to engage in banking.

 

[Samej]

the euro is going to collaspe

f***ing hope so

 

[sten_super]

Spanish Bank problems, how would this place Santander?

According to the chart at the end of this BBC article, Spain actually isn't particularly badly exposed to Greek debt, so I stand corrected. I can only assume that the assets they did hold have expired and someone else (French banks, by the look of it!) have picked them up at higher interest rates.

BBC News - Greece: Eurozone ministers delay decision on vital loan

Still, it's a mess, and seemingly the best case scenario after this second bailout is that a default is avoided at the cost of a decade of high unemployment, low wages and a despondent Greek economy.