Please understand that the Greeks have already de-facto defaulted. And the same bankers+elite cartel that lent them before will be lending to them tomorrow because it won’t be them who will be taking the risk, as usual. When you’ve set up a system in which you take all profits (i.e. interest on capital that you don’t even own) while everybody else soaks up the inevitable losses, then every loan (to any borrower) would be a screaming deal.
+1 Z. You see the racket.
Update:
If Greece wanted to borrow money over ten years right now, it would have to pay a staggeringly high interest rate of more than 15 percent. For two-year bonds, interest rates are even higher at over 25 percent.
That’s unsustainable and compares with the 2 percent to 3 percent rates that Germany would have to pay - an incredible difference between countries that use the same currency and operate under the same monetary policy.
So what’s gonna happen?
European authorities have conceded they may need to do more to help Greece with its massive debts more than a year after it was first bailed out, but robustly denied the country wanted to leave the common currency.
One thing I don’t understand. If you want the money for ten years, you get it ten percent cheaper than if you want it for two years?
Perhaps the ten-year bonds have some sort of index-linkage?
“One thing I don’t understand. If you want the money for ten years, you get it ten percent cheaper than if you want it for two years?”
Bizzare, yes.
Shouldn’t it be the other way round, when the future is more uncertain?
What makes the yield curve slope downwards?
The interest rate curve distortions on Greek bonds will reflect the durations of the bonds held by the banks. The issues (durations) most likely to get bailed out will attract the highest price premium (lowest interest rates). From the quote, it would appear that the banks are loaded with 10 year Greek bonds. The market is saying that you’re likely to get more of your principal back if you’re holding what the banks are holding. Just a guess.
Default will not be enough for Greece.
It has been suggested that even if Greece government defaults, it will still have to devalue, just as the Argentinian government did.
I remember reading in Frederic Mishkin’s writings on the Argentine crisis that the Argentine goverment ordered a bar on withdrawing from bank accounts when it first devalued, knowing that thousands of Argentinians with dollar denominated bank accounts would not stand to see their dollars being taken away from them after the devaluation.
It’s considered that the same would have to be done in Greece, once devaluation occurs. People will have to be stopped by compulsion from withdrawing cash from their accounts.
Such a prediction goes against what was said in this article. http://global-crisis-debate.info/index.php?q=node/729 It was suggested back then that any attempt to leave the Eurozone was purely posturing to get cheers from the public and that nobody could ever really accomplish such a thing anymore. And of course, if it can’t leave the Eurozone, it can’t devalue.
Seems to me that the whole point of leaving is to devalue. And sure they might very well have a run that will have to stopped by a bank holiday. So?
And the arguments in that article, like “where will they get the coins for the slot machines”, seem silly to me, as does Krugman’s “being in a grand design helps you”.
Newspapers here are doing the hype job to end all hype jobs about this, all the while “mysteriously” failing to mention the Goldman Sachs connection. What a coincidence.
Getting back to Greece, it’s obvious the EU and the ECB lied (yes, even more than usual) last year about how desperate the situation was, and it only got worse. My suspect is Greece will now become as dependant on foreign aids as a Third World country. And while nobody mentions Portugal and Greece anymore, expect to hear more from them soon. Greece, Portugal and ireland are bad enough but the next big crisis is just around the corner. There are two large countries in the EU facing difficult times: Italy and Spain. Compared to either of these, bailing out Greece will be a veritable cakewalk. Both countries have very high unemployment, especially among youths, further exacerbated by large numbers of immigrants. Both have issues with their industrial base: Spain’s housing bubble is still deflating while Italy’s manufacturing base (concentrated in the North) is consistently shrinking due to increased competition from Germany and the complete lack of any reform whatsoever. Both Zapatero and Berlusconi have a “kick the can” attitude, living day by day without any long term plan whatsoever. Both men have already announced they won’t run for a further term so they have little if any interest in improving things.
In short they don’t plan being around when it will come to the “push of the pikes”.
Military juntas all around by the next decade then? Heck, a few of these guys are just around the corner from here.
I am really, really curious about what will happen next. If ECB chairm Trichet is going around saying (in a threatening tone I may add) that no country will leave the euro and Greece won’t default, cooler heads are having second thoughts whatever imposing even more sacrifices over the rest of Europe while unemployment is still growing and price inflation is rearing its ugly head even in official statistics. Jan Kaes de Jager, Dutch Minister of Finances, said that a EU committee (love this Soviet-vintage rhetoric) has been charged with studying the impact of a partial default on the eurozone. This is the first time somebody admitted a default is among the options.
Meanwhile in Athens the situation is heating up. If we cannot talk about a proper bank run, more and more people are taking steps to protect themselves from either a forced confiscation or a return to the drachma. Money is being moved abroad (if done inside the EU it’s completely legal) or simply withdrawn from the bank and stashed away. The recent laws forbidding cash movements over 5000€ has proven too difficult to implement, even when special powers were given to the local version of the IRS. Talks to define the austerity measures are going nowhere, as nobody wants to shoulder the political cost of the decision. George Papandreou, in yet another moment of embarassing stupidity, is going around saying “The EU will step in, the EU will step in, no need to worry”.
Of course this requires the French to be ready to pressure everybody else into accepting sacrifices for the sake of Greece. And Ireland. And Portugal. And perhaps Italy. France has the political capital to do this but it needs to carefully consider this may be the straw that broke the camel’s back. If the present crop of German politicians is pretty much owned lock, stock and barrel by the French and the German political apparatus is geared towards immobility, this doesn’t mean the situation cannot change fast. After all there’s no written rule forcing countries like Germany and The Netherlands into bankrolling somebody else’s debts.
As I said, it’s not “countries X” paying “countres’ Y” debts that matters. The “nations” dichotomy is just a dog and pony show for the brainwashed nationalistic herds. Through the magic of central banking “Germany” and “Netherlands” are already on the hook for “Greece’s” debts. The banks holding Greek debt are everyone’s problem. Whether they get bailed out through (1) printing to “save Greece”, or (2) printing to “save the banks” due to Greece (and Ireland, and Portugal, etc.) defaulting, doesn’t make a smidgen of a difference. Keep your eye on the ball.
I don’t know, but I’d like to buy some greek debt atm.
Uhh z, it isnt the ECB who is doing the major refinancing to greece, it is the national governments. Hence the dichotomy of nations is correct. It is done from the budgets of governments, not that of ECB.
Sure, it’s the “national” governments going down into their cellars and “refinancing” Greece from their own stashes of EUR currency. The central bank has nothing whatsoever to do with it. Got it. (/sarcasm)
Well, as the Greeks would say: oooopa!