The real problem is that banks lent to Greece without doing their due diligence evaluating risk. Instead the bankers collected their fat fees for making the loans. Usually when banks make bad loans they have to write them off but when in 2010 the Troika (Euro Community, IMF, ECB) took over the Greek debt they paid 100% instead of insisting on the banks taking a "haircut" of say 50%. In truth some of the smaller members of the IMF did ask that they banks take a hit but the larger members turned that down.
The problems with the Greek economy that lenders are complaining about now, about the lowest tax collection rate in Europe, the "overly generous" retirement plans all existed before banks made the loans and fixing these problems should have been made a condition of making the loans in the first place.
It will be impossible for Greece to pay off the debt and now instead of the bank management (and the shareholders who appointed them) taking the hit for their incompetence in making the loans the taxpayers will take the hit.
The German and other taxpayers should not have a problem with Greece, but rather that Merkel and other governments decided to pay off the banks 100% instead of insisting that they take a large "haircut."
Ideally, the banks should have been made to take a "haircut" on the loans and the shareholders should have fired the management. Instead Merkel and other leaders let the banks off the hook putting the burden on the taxpayers. Now the taxpayers should fire Merkel and the leadership of other countries that OK'd the 100% payout to the banks in the next elections.
This is so common that it already has a name: extend and pretend. That's exactly what was done with Greece; the interest rate was lowered to a scandalously generous level, maturities extended to practically forever (Merkel and co. will be long dead by the time most of it is due), and everyone got to pretend things were fine. As usual with this approach, things weren't fine, and when it was time to extend and pretend again, someone decided they weren't going along with it.
Japan has been extending and pretending for about 25 years now. They are far more indebted than Greece but their interest rates are even lower. There is no conceivable way that Japan is ever going to repay that debt, and it's still growing at a pretty rapid pace. The circumstances are different (very few JGBs are held by foreigners, and Japan issues its own currency), but it's pretty clear from experience that extend and pretend leads to lengthy periods of anemic economic activity. The question is whether default and workout will be any better; the record there is mixed at best.
If Japan owes debt in its own currency, can it just print money to pay off the debt? If Greece can't devalue its currency this way, is its situation materially different by even just this fact alone?
Yes. Economists often refer to "explicit" sovereign defaults (where the debts don't get paid back) and "implicit" defaults (where the debts get wiped out by a policy of deliberate inflation or devaluing of the currency). Greece's inability to effect an implicit default is why they've ended up with an explicit default.
In the case of Japan, since most of their debt is held by residents, it's even a stretch to call this an implicit default; a better characterization would be "wealth tax effected by inflation". Either way, if the Japanese government could maintain a balanced budget, their central bank policy of flooding the market with Yen would eventually allow them to pay off the existing debts.
Japan is now in a trap - they want to go from deflation to moderate inflation to boost economic growth but won't be able to handle the dept if cost of borrowing money raises. Also their demographics situation is one of the worst in the world - if they don't repay the debts now how will they do it when number of people in production age drops.
Your information, wherever you are getting it from, is faulty or at best years out of date:
The Troika indeed has made private creditors take much more than a "say 50%" haircut, in their second bailout package from the 21st of February 2012, the "Second Economic Adjustment Programme for Greece". The private creditors took a 53% cut in principal payments, a massive extension of the term and a reduction in interest rate - they lost maybe 70-75% of their money in present value terms.
And of course, if the Greeks would have been forced into default in 2010 as you demand, none of the subsequent €200bn+ Troika bailouts would have happened - the starvation would have set in 5 years earlier as the country would have had no chance to cover their primary deficits - even without debt repayments.
'As long ago as 2010, when Greece was first bailed out, many knowledgeable observers, including some members of the I.M.F.’s board of directors, worried that Greece would never be able to pay back all of its debts—its total debt burden is about a hundred and seventy five per cent of the country’s G.D.P.—and advocated imposing a haircut on its creditors. Rather than doing this, the European Union, the European Central Bank, and the I.M.F. loaned the Greek government money to pay its creditors, which were mostly European banks, at a hundred cents on the dollar. In the now-famous words of Karl Otto Pöhl, a former head of the Bundesbank, the bailout “was about protecting German banks, but especially the French banks, from debt write-offs.”'
It's true that later in 2012 there was a "haircut" (as the article states) but that should have been done as part of the 2010 agreement. The funds paying off the banks in 2010 became part of government and government agency debt not covered by the haircut of 2012. They should have made the banks take the haircut in 2010 and thus the taxpayers would have been held accountable for far less debt.
Now as I write this, I realise how totally lost everyone is in this matter. We can only have an opinion, I doubt anyone actually understands what the hell is going on and what to do next.
There's the financial situation, the historical wounds, the pride, the desperation, the fear, the two sides of the coin. And also the freaking heat wave that's scorching us here in Europe.
Many Europeans blame the "lazy" Greeks, Greeks blame the "heartless" Germans, what I've been noticing is a ridiculous amount of million dollar yachts in the ports of Europe.
I have to agree.. "investment" is about risk/reward... businesses should be allowed to fail, and should have to suffer real consequences. When they get bailed out, it should have conditions attached, and in this case, it was mismanaged all around. I actually really appreciate the approach that Iceland forced on the issue, vs. how we here in the U.S. dealt with things. Yes, it was a hard decision with hard consequences, but was much more right imho.
I really wish that legislation regarding the financial industry were much closer to Canada's, as an example.
The problems with the Greek economy that lenders are complaining about now, about the lowest tax collection rate in Europe, the "overly generous" retirement plans all existed before banks made the loans and fixing these problems should have been made a condition of making the loans in the first place.
It will be impossible for Greece to pay off the debt and now instead of the bank management (and the shareholders who appointed them) taking the hit for their incompetence in making the loans the taxpayers will take the hit.
The German and other taxpayers should not have a problem with Greece, but rather that Merkel and other governments decided to pay off the banks 100% instead of insisting that they take a large "haircut."
Ideally, the banks should have been made to take a "haircut" on the loans and the shareholders should have fired the management. Instead Merkel and other leaders let the banks off the hook putting the burden on the taxpayers. Now the taxpayers should fire Merkel and the leadership of other countries that OK'd the 100% payout to the banks in the next elections.