Seumas still doesn\’t get finance, does he?

Unless it\’s understood that it\’s not the Greek economy that\’s being rescued, but European and US banks exposed to Greek debt.

No, it\’s not the banks that are being bailed out. It\’s the political dream of a United Europe that is.

You\’ll note that it\’s the banks being askedd to take a 50% haircut? You\’ll note that the Greek debt already trades at a 50% discount to nominal?

The banks have already lost their money. Deutsche Bank carries Greek debt on its books at 50% of nominal. So does RBS. So, in fact, does every bank that has even a modicum of sense (this excludes certain French banks but then we knew that was likely, finance and Frenchmen not mixing well).

For the banks Greece going bust has already happened, they\’ve already lost their money. What\’s next on hte banks\’ agenda is, OK, so, they\’re bust. What do we all do to get them moving again?

The people who are not being asked to take a haircut are the IMF, the ECB, the EFSF, the whole lot of public sector holders of Greek debt. They too have, in reality (perhaps not the IMF as it is always first in line as a creditor) lost 50% of their money…..because Greek debt is trading at 50% of nominal. This whole farce of a bailout, the austerity, the entirely counter-productive wringing out of a nation, is all to try and make sure that those public sector holders do not have to acknoweldge the loss they have already made.

For to do so would bring home to all sorts of people (like, you know, taxpayers?) quite how expensive this European Dream is. Which would never do at all.

The thing is, if everyone did what the private sector banks are already willing to do, take a 50% haircut (we know they\’re willing to do this because the bonds trade at 50% of nominal), if the public sector was willing to acknowledge the money they\’ve already lost, then the Greek debt problem would be over.

Greek debt would fall from 150% (it\’s about that now isn\’t it?) of GDP to 75% of GDP, a few French banks would go bust, taxpayers across Europe would have to cough up maybe €200 per head to cover the public losses and it would be done.


The French perhaps a bit more to nationalise and recapitalise their banks but that\’s a French problem.

Greek debt of 75% of GDP? Yup, they, even they, can grow out of that.

What wouldn\’t survive is the Grand European Dream, that the disparate continent can be turned into one Great Country ruled by the technocrats in Brussels. Which is why the technocrats in Brussels won\’t solve the problem in the obvious and simple manner. Because the Dream is more important than the People.

Sadly, an economy, a country, where a Dream, any Dream, is more inportant than the People isn\’t a nice one for people to inhabit.

8 thoughts on “Seumas still doesn\’t get finance, does he?”

  1. ….The French perhaps a bit more to nationalise and recapitalise their banks but that’s a French problem….

    Since when has nationalising anything been a problem for the French.

  2. “we knew that was likely, finance and Frenchmen not mixing well”

    Living in France I can attest to that. Competition, choice and being customer friendly is also an anathema to them.

  3. Cannot Greece do its accounting like investment banks, ie mark-to-market it own liabilities, and record the losses as profits? Then it could show a budget surplus each month, which would restore confidence.

  4. The biggest quantum of loss would be by the ECB, and that would need re-financing as well, which would be embarrassing. It may not be the lender of last resort yet, but it is the holder of government bonds of last resort…

  5. He is about 75% right about the general nature of the euro-crisis, though.

    Plenty of British euro-sceptics on the “right” could have written this:

    “But the controversy goes to the heart of Europe’s problem with democracy. It’s not just fear of the risks of delay on febrile bond markets that has caused apoplexy, but the danger that Greeks might vote the wrong way. Voting is not how things are done in the EU. And whenever a state does actually consult its people – Denmark and Ireland had a go – they are made to vote again until they get it right.”

  6. NormallyYou'reCorrectBut...

    the ECB’s “SMP” is buying peripheral govys from the banks.

    you might recall the ECB is ultimately backed by eurozone tax payers.

    i think it’s fair to say both the banks and the politicians are being bailed out.

  7. Pingback: Greek Games, Good Manners - Charles Crawford

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