The Greek Debt Problem Still Isn’t Solved, For The Obvious Reason – European Taxpayers

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Debts that cannot be repaid won’t be repaid – there are no known examples of this not being true. Given that Greece cannot repay the money currently owed it will not be repaid, that’s pretty obvious and simple. However, stout insistences that it will all be repaid must be maintained. For what is owed is due to European taxpayers and the politicians who sprayed the money on Greece, for entirely and only political reasons, cannot afford for fear of their own careers to admit the obvious.

Thus we simply don’t get the known and logical solution to the Greek debt crisis. Actually, the one the IMF has been arguing for all along, the one none of the EU politicians involved are willing to contemplate. Just accept that the money is lost and write it off. Instead we get this:

Eurozone finance ministers are poised to give Greece debt relief — a big step towards preparing the country’s exit from more than eight years of international bailouts.

No, they’re not:

Given that a simple cut in the amount that Greece owes is not under discussion, easing its repayment burden by extending maturities is the central question going into Thursday’s discussions. It is also one where positions are “converging very rapidly”, according to a senior eurozone official.

At stake is the treatment of close to €100bn of Greece’s older bailout loans — postponing the start of significant repayments from 2023 until a more distant date.

Again, the money is lost already. Greece just won’t repay that money. The only question is how will it be recognised as being lost? The answer being in a manner that the average voter won’t understand. If the total owed is cut to something that can be repaid then even the less financially aware of us can be convinced that the money ha been lost. They borrowed $200, are paying back $100, sure, and that’s a $100 loss, isn’t it? At which point the peasants storm the eurozone and pitchfork the finance ministers and eurocrats who lent the money.

But what if we insist that the capital amount must be repaid? But extend out that repayment period to 50 years, hell, 70? And at an interest rate of spit? We’ve still lost the money. We could have been doing something else with it, right, the interest being the value of that something else. Inflation will take its toll and so on. 70 year loans at one basis point really are money losers.

So, what’s the difference here? Well, that second method is more costly, it hampers Greek recovery for longer, prevents access to market finance and so on. It also means that the politicians don’t have to admit that they’ve lost the money. Which is why it is being done this way.

Think back a bit, to when the crisis first hit. Where the bonds were held by investors, actual capitalists, we said screw the investors. 70% and more haircuts were imposed and the debt burden relieved. Where the creditors were politically connected banks we said something must be done. Governments refinanced those debts. Meaning the money is now owed to the taxpayers who own it. Which is why we cannot have that proper form of debt relief – screw the investors – because that would damage political careers.

Greece is being hung on the rack of politics. If we’d actually left it to markets they’d have gone bust, investors would have lost most of their money and the entire process would be over now, done and dusted.

Bully for politics, eh?

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Quentin VoleTim WorstallBloke in North DorsetNautical NickSpike Recent comment authors
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Spike
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Spike

Quite right that prolonging the inevitable continues payments being made to Eurobanks, consisting of “bailout” money from Eurotaxpayers. It props up political careers, and it also prolongs the fiction in Greece of being able to buy votes with borrowed money. National bankruptcy for Greece should have an attribute of private bankruptcy: distribution of assets. Greece has several attractive bits of sovereign territory that could be broken off and put in more responsible hands in order to extinguish its debt. (Maybe some day US pensioners can also be convinced to “accept that the money is lost and write it off” rather… Read more »

Nautical Nick
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Nautical Nick

I’d really recommend Varoufakis’s book, Adults in the Room, which makes the same point. Maybe I’m just sad, but I found it gripping!

Bloke in North Dorset
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Bloke in North Dorset

I haven’t read it but have heard him being interviewed a number of times. If any politician or civil servant involved in any way whatsoever in the Brexit negotiations hasn’t read it they should be fired for gross mis conduct.

Quentin Vole
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Quentin Vole

Why is the article illustrated by an Israeli map of Greece? Anyone speak Hebrew well enough to translate? (Just curious, and with apologies if I’ve missed the joke!)