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Normally, when you don't pay a debt, your creditors take your goods (house, car, etc...).

If Greece cannot pay its debt, can its creditors take Greek goods (structures, cities, industries, lands, etc...)? Can Germany, or other organizations, become owners of Greece?

Maybe that's a silly question, but for a non-expert it sounds logical.

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    $\begingroup$ lol. This is a good question presented in an entertaining way. $\endgroup$ – chicks Jul 9 '15 at 22:06
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In general, there are three kinds of debt:

  1. Secured debt, like a mortgage or a repurchase agreement. With a mortgage, for example, the debt is secured by a lien on the home, and if the debtor does not pay, the creditor can seize the home.
  2. Unsecured debt, like a credit card or corporate bond. Governments will generally allow creditors to liquidate many of the assets of an insolvent individual or firm to meet unsecured obligations, subject to (often significant) limits. For individuals, things like retirement accounts and primary residences are often off-limits for debt collection.
  3. Sovereign debt. Sovereigns typically issue debt under their own law, and countries generally don't set up their legal systems in such a way as to allow other countries to take their things. However, when sovereigns issue debt under foreign countries' law, as Greece has done with some UK-law bonds, payouts tend to be higher, and overseas property is in fact occasionally seized. However, seizing the domestic property of a defaulted sovereign is effectively impossible, as one of the benefits of being a sovereign is that you control your own territory— attempting to seize another nation's "structures, cities, industries, lands, etc." (setting aside the fact that most structures, cities, industries, and land in Greece are not owned by the government) is what is known as an act of war.
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  • $\begingroup$ This is a great answer! $\endgroup$ – Stan Shunpike Jul 8 '15 at 7:49
  • $\begingroup$ 'act of war' -- don't understand. Are creditors the aggressors of the 'war' as if they are a state of their own? $\endgroup$ – BCLC Jul 16 '15 at 19:33
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    $\begingroup$ If creditor states were to attempt to seize Greece's domestic assets by force (to be clear: there has never been any suggestion that anyone would do so), that would constitute an act of war. This is the real-world fact of most sovereign debt— the most you can do (with the exceptions noted in the main answer) is ask nicely for repayment, and encourage others to not lend to countries that default. If a country decides to default on its domestic-law debt, there's no further recourse available to creditors, because the exact entity that would enforce the contract is the one that is defaulting. $\endgroup$ – dismalscience Jul 16 '15 at 19:48
  • $\begingroup$ that sentence "is what is known as an act of war" is well written, explicative. $\endgroup$ – Fix.B. Aug 13 '16 at 4:20
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@dismalscience said it all.

I'd add that the EU is trying to get Greece's property in two indirect ways.

First, the troika demanded from Greece to privatize some of its public assets. While privatization is beneficial in the bull market, asset prices in Greece are, of course, at their prehistoric levels. Greek companies are all cash constrained now, and the likely buyer of this discounted property will be other European companies, mostly from the net creditor countries.

Second, the leaked drafts of the troika's new demands asked Greece to put its "valuable assets" in a Luxembourg-based fund. The only point of this transaction, as I see it, is to seize the assets if Greece defaults later.

And, yes, correct me if my suspicious about the latter are wrong.

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In short, Greece has already been taken.

The key point to note is that money does not have any value until it gets exchanged for either goods or services. Until that exchange happens money does not have any value whatsoever; it is merely a promise and creating promises costs literally nothing. Every country (except for those in currency unions, yes, Greece) can create endless money supplies at no cost because money as we use it today does not have any value.

Goods and services have value, not money. For anybody that happened to live through hyperinflation times or even quantitative easing periods which is happening as I am writing these words as ECB launched 1 trillion (!) QE program, it's obvious how burning money can be.

ECB is not after money as it can easily create endless money supplies, just to mention, quantitative easing.

What ECB is after is control. ECB wants to control country's domestic matters and make sure that ECB, or wider, the whole banking sector, maintains its supreme position in the country's economy.

Both Lucas Papademos and Mario Monti (yes, Italy) have strong ties to the biggest banks, yet they were supposed to represent their country's interest. Whose interest do you think they were defending? And these two guys aren't even an exception.

So for ECB, the main player in the Euro currency union, it makes sense to keep buying Greek bonds because it costs them nothing and, most importantly, assures Greece stays in Euro Zone which in turn means that ECB essentially controls the country. The only challenge is how long other countries who are not directly the lenders, will tolerate such a scenario because they are the real losers.

Update

As predicted in my answer, ECB just confirmed that it will step in and provide liquidity for Greek lenders. ECB did so because it is in its own interest to keep Greece in Euro zone regardless of how much money they require to maintain liquidity as creating money does not cost anything. Greece will only leave Euro zone if 1) decides to do so 2) other Euro zones countries will kick Greece out.

https://en.wikipedia.org/wiki/Lucas_Papademos

http://uk.reuters.com/article/2015/03/31/uk-markets-bonds-qe-idUKKBN0MR0FG20150331

http://www.wsj.com/articles/eurozone-leaders-reach-unanimous-agreement-on-greece-says-eus-tusk-1436771076

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    $\begingroup$ negative voters - leave your comment $\endgroup$ – matcheek Jul 8 '15 at 22:06
  • $\begingroup$ While there is some truth to there being no intrinsic value of money, that needn't say that in the current equilibrium, it has none. Also, I really dont like the conspiracy theory / speculation that kicks in at the second half of the answer. $\endgroup$ – FooBar Jul 11 '15 at 12:28
  • $\begingroup$ @FooBar I find it embarrassing seeing people incapable of embracing a simple truth: banks are profit-driven. Assuming that banks will use their supreme position in today's economy to decrease their profits is kind of naivety that I doubt even my 3 years old son can beat. Banks act rationally, so they 1) delegalized any competing public tenders. Left just one and seized the control over it 2) insured bank's deposits with taxpayers money 3) raised min capital for banking to millions 4) deprived State of controlling majority of money supplies and finally 5) control the banking law $\endgroup$ – matcheek Jul 11 '15 at 13:05
  • $\begingroup$ How is anything you wrote above relevant for a central bank? Judging from your past history here, I value my time too much to jump into a lengthy discussion here. You wanted a comment on the vote, here it is. I wont followup on this post no more. $\endgroup$ – FooBar Jul 11 '15 at 13:16
  • $\begingroup$ @FooBar You misunderstood the question. OP did not ask about "central" . He asked about banking. Plus you offend other users without having an understanding of fundamentals of banking yourself where the only thing you have to realize is that bank act rationally. $\endgroup$ – matcheek Jul 11 '15 at 13:26

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