I've been catching up on my reading these few days. There is a backlog of books I wanted to read but haven't found the time until last week. I'm also watching what is happening in Greece very closely - there are many lessons here to be learned. Greece's problem is not difficult to understand. Greece has a population of 11 million, a GDP of US$329B and owes US$500B. Greece owes too much money and does not have the means to pay back. To put things into perspective - Thailand with a population 67M and GDP of $180B collapsed during the Asian crisis under a debt of US$100B. Thailand took 3 years to come back. For Greece we are looking at something like a decade or even longer. How Greece got here is not difficult to understand:
"Initially currency devaluation helped finance the borrowing. After the introduction of the euro in Jan 2001, Greece was initially able to borrow due to the lower interest rates government bonds could command. The late-2000s financial crisis that began in 2007 had a particularly large effect on Greece. Two of the country's largest industries are tourism and shipping, and both were badly affected by the downturn with revenues falling 15% in 2009.
To keep within the monetary union guidelines, the government of Greece has been found to have consistently and deliberately misreported the country's official economic statistics. In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing. The purpose of these deals made by several subsequent Greek governments was to enable them to spend beyond their means, while hiding the actual deficit from the EU overseers."
[Source : http://en.wikipedia.org/wiki/European_sovereign_debt_crisis]
The Greek govt took on a lot of debt then hide it from EU with the help of investment banks like Goldman Sachs. When the financial crisis came, it couldn't service its debt. Prior to the crisis, Greece was the fastest growing economy in Europe and proudly hosted the 2004 Olympic games.When things look good, nobody bothered to look under the hood and there were heaps of praises for the Greek govt and its fast economic growth. The lesson for us, Singaporeans, is never wait for things to happen then look for transparency - it is too late. Transparency like sunlight is a natural disinfectant ...we have to be active citizens - keep asking questions and demand greater transparency and accountability at all levels of govt. As Greece falls apart, the ordinary citizens are asked to swallow the bitter pill while the rich elites who benefitted most from the years of high economic growth simply moved their money and assets out of their country to avoid rising taxes[Link:Greek wealth finds a home in London ]. The Greeks had a bad tax collection system and the rich were able evade tax when the economy was doing well and they were most willing to pay. The lesson for us is keeping taxes low to attract the wealthy has little benefits for ordinary Singaporeans except the few in the wealth management business - when things go wrong, they will simply move money out and you will suffer a double whammy. For survibability in crisis is best for wealth to be more evenly distributed in society and proper progressive taxation to achieve that is best vs fixation with lowering taxes for the rich.
Link]. With an income ceiling of $10K, it means that these flats are priced at at least 88 times monthly income. If I'm not wrong, it translates to roughly using about half the income to service the debt over a 20 years period. This is the best case since we are talking about people at the income ceiling so there will be people with even higher debt burdens. Whoever buys these flats assumes that things will be smooth economically for the coming decades - rather oblivious to the external environment. While the EU will likely put together another 'band-aid\ type rescue package for Greece to calm jittery markets in the next few days, they are just kicking the can further down the road postponing a major crisis for another few months. There is also a small chance that the Greek govt collapses suddenly due to protests and infighting bringing forward this day of reckoning that will plunge the global economy to another crisis - one perhaps more serious and longer lasting than the 2008 financial crisis.