European Union To Greece: Here, Have Some More Taxpayers' Money, Lots Of It - Forbes:
As some of us pointed out about the Greek debt “deal” there wasn’t in fact a deal at all.
There was just an agreement to carry on and muddle through until something really could be done about it all.
And that would be when everyone was thinking or talking about something else.
For there has only ever been one possible solution to the amount of debt that Greece has: some of it must be written off.
However, as a political solution that’s just not possible.
The
other taxpayers in Europe simply will not stand for the idea that their money swirls down the plughole of whatever it was that Greece spent all that money upon.
And it will have to be taxpayers too.
There’s almost no private Greek debt left other than that owned by the Greek banks themselves: and that can’t be haircut because then the Greek banks go bust meaning that the Greek government must bail them out with the money it hasn’t got.
...
The debt must be cut simply because it is unpayable.
Thus
it will have to be the taxpayers of other EU countries that bear the losses.
But, as above, it’s
not politically possible to actually say this and just cut the amount of debt to be repaid.
And it also wouldn’t have been possible to kludge this when everyone was talking about the issue. Now, as we all concentrate on other things, that kludge is possible.
And that’s exactly what is being done:
...
The point is this: there’s a time value to money.
That’s what an interest rate actually is: a reflection of the time value of money. £1 today is worth more than £1 in a years’ time.
At current market interest rates that £1 in 365 days is worth some 97 pence today (roughly, around and about).
So, If I say that that pound you owe me can instead be paid back in 365 days’ time then I’ve let you off 3% of your debt to me.
Now think about this politically.
I have lent your money to someone else.
And you’re going to get very angry if I tell you that I’ve lost 3% of it.
Why,
you might even vote against me and turf me out of my very comfortable job running Europe for you.
Thus I say, no, no, they will still pay back £1, only in a year’s time!
You haven’t lost anything at all you see! S
moke and mirrors of course, I’ve lost you 3% of your money, whether we think of it as being 97 pence now or £1 in a years’ time.
And
thus what is happening to the Greek debt.
It simply cannot be repaid.
Thus the debt must be cut and the people who lent the money must lose however much that debt is cut by.
But if we do it by lower interest rates and longer repayment terms then we are able to say that it will be repaid.
Glossing over the fact that what will come back will be worth less than what was lent out.
What should have happened, what still should happen, is Greece leave the euro, the debt be redenominated in the new drachma and everyone acknowledge their losses as the devaluation takes place.
Because the loss has already happened, the only question is how it is to be recognised.
And
if we’re honest about it it would be better to acknowledge that a couple of hundred billion has been lost on this European adventure and to recognise it right now..."
