On-line Opinion Magazine…OK, it's a blog
Random header image... Refresh for more!

Banks Not Interested In ‘Sharing The Pain’

The BBC reports that Merkel and Sarkozy urge bail-out

The leaders of Germany and France have said that they want a new rescue package for debt-laden Greece to be agreed as soon as possible.

Angela Merkel and Nicolas Sarkozy were speaking after Greece’s Prime Minister George Papandreou announced a cabinet reshuffle.

There had been calls in Germany that investors should allow Greece extra time to pay off debts and should be made to participate in future fundraising by the Athens government.

After the meeting, the two leaders said they agreed that any private sector involvement should be “voluntary” not compulsory.

It was unclear under what terms private investors might voluntarily take part in a Greek bail-out.

But the comments by Mrs Merkel and Mr Sarkozy were seen as a signal to banks and bondholders that they will not be made to incur losses on Greek debt.

The graphic with the article shows that French banks have half of Greece’s debt, and German banks one-third, which explains why Merkel and Sarkozy are trying to get a deal. Their banks are overloaded with Greek debt and would have problems if a deal isn’t made.

To recap – French and German taxpayers are making loans to Greek taxpayers who are sending all of the money to French and German banks. It would be simpler just to have the French and Germans directly bail out their own banks and leave the Greeks alone, but Merkel and Sarkozy don’t want their voters to realize that is what is going on, and are using the Greeks to cover their tracks.

I can go along with a deal that covers the principal of the loans, but there is nothing in business that says you are guaranteed a profit. The banks should restructure the notes, but they have probably sold derivatives to leverage the loans, and would owe many times the value of the loans if they did that. This is how they managed to blow up the global economy with mortgages.

4 comments

1 Badtux { 06.19.11 at 7:24 pm }

If they keep going this way , Greece is going to drop out of the Euro and pay off their debt in newly-devalued drachmas, and *then* what are they gonna do? This is a game of chicken, and I wouldn’t bet on the Frogs and Huns here.

– Badtux the N0-games Penguin

2 Bryan { 06.19.11 at 9:23 pm }

They have over-played their hand because the Irish went along, and don’t understand that the Greeks have had the time to look at what is happening around them, and don’t like what they see.

Most of the major problems go back the Olympics. The Greek government should never have bid, because no one ever makes money from the Olympics. It was a financial disaster for them, even without looking at all of the corruption involved. If it hadn’t occurred during the asset bubble there is no way in hell anyone with half a brain would have loaned them the money.

Realistically bond holders should be hoping for their principal, not trying to get interest, because the money just isn’t there.

3 Badtux { 06.20.11 at 1:41 pm }

Well, there’s also the fact that, like America’s wealthy, the Greek elite are a bunch of tax-evading scum who pay nowhere near the same percentage of their income as taxes as us working sods. (Last I heard, America’s wealthy paid less than 17% of their income as taxes — which, given that we need to tax 28% of America’s wealth as taxes to pay for the government we want, means they’re a bunch of deadbeats). So the Greeks would have fiscal problems regardless of their currency.

But the thing is, with their own currency, it’d be *their* monetary policies and they could go back to their old ways of inflating their currency to deal with their fiscal issues. Which terrifies the Frogs and Krauts, but (shrug). It’s what they did for decades prior to adopting the Euro, so it’s not as if it’s never been done before.

– Badtux the Monetary Penguin

4 Bryan { 06.20.11 at 5:57 pm }

The feeling I get is that some want to loot as much of Greece, including some islands, as is possible, before they admit that the Greeks can’t possibly handle the debt without restructuring.

The question is whether the Greeks will tell the French and Germans to sod off, and leave the Eurozone, before the bondholders admit they have to go for a real solution.

The Greek wealthy are famous for not paying taxes, just like everyone else’s elite. The government should freeze their assets and give them a stipend to live on.