BBC BLOGS - Peston's Picks
« Previous | Main | Next »

What price a Greek haircut?

Robert Peston | 09:41 UK time, Tuesday, 10 May 2011

One of Europe's most influential bankers said to me the other day that he thought it would be a disaster if any of the eurozone's debt-stretched nations imposed a reduction in the value of their respective sovereign borrowings, or - to use the jargon - took a haircut on their debts.

Greek parliament building

For him, the eurozone approach of muddling through - providing IMF and eurozone loans to those countries that cannot borrow on markets - is the right approach, even if it hasn't actually solved anything for the eurozone in a permanent sense.

It is curious he should take that view, given that the rescues of Greece and Ireland that took place last year are already having to be renegotiated. And the bailout of those countries didn't stop the rot: Portugal is well into the process of obtaining emergency finance from eurozone and IMF.

Wouldn't it be better to cut what Greece - or Portugal or Ireland - owes down to a manageable size, in tandem with the imposed shrinkage of its public sector, to put its public finances back on a basis that is sustainable for the long term?

The markets are saying that's the only way forward. Over the course of a year, the market price of Greek government debt has fallen by more than half, for example. The yield on 10-year Greek government bonds is well over 15%. Which is an unambiguous statement from investors that there is not the faintest chance that they will lend to Greece again, unless and until its debt burden is reduced to a manageable size.

Or to put it another way, markets are presenting a simple choice to eurozone government heads and the IMF: they can continue to lend to Greece for an indefinite period, in the hope that Greece's economic growth will eventually pick up and generate incremental tax revenues, which would allow the Greek government to perhaps start paying down its debts; or they can bite the bullet and put Greece into the equivalent of what the Americans call Chapter 11 bankruptcy protection, to restructure and reduce what Greece owes so that it is consistent with the market price of all that debt.

Now as of this instant, option one looks a bit naive, in that what's happened subsequent to the first bailout of Greece a year ago is that its ratio of debt to GDP has been growing in leaps and bounds to more than 150% of GDP (and for more on the heroic challenges faced by Greece, see reports in the next day or two from Stephanie Flanders, who is in Athens).

So you would have expected my influential banker - who knows a thing or two about the markets - to be in favour of what the markets are saying is inevitable. Surely he should be calling for that most humiliating event for any creditor, a formal admission by Greece that it can't pay what it owes, which goes by the moniker of a haircut, or restructuring, or default?

But Mr Big Banker doesn't think that's the right way forward. His reasoning is that he fears a debt restructuring would weaken many of Europe's banks, such that they would be forced to raise new capital - perhaps from their respective governments. And, for reasons that slightly elude me, he sees that as a worse outcome than leaving Greece trapped in an unbreakably vicious cycle of economic decline.

The odd thing, however, is that the official statistics really don't seem to indicate that a haircut on Greek debt would be Armageddon for Europe's banks.

It would be a disaster for Greece's banks, that's certainly true, given that (according to Bank of England figures) a 50% writedown of Greek sovereign debt would wipe out more than 70% of their equity capital. Or to put it another way, they would be bust and would have to be recapitalised.

But, sooner or later, Greece's banks are going to need strengthening in any case. Fixing Greece's public finances won't fix Greece unless its banks are mended too. So any estimate of the costs of rehabilitating that country will include the price of providing new capital to the banks.

The more relevant question, perhaps, is what a Greek haircut would mean for banks outside Greece.

The latest figures from the Bank for International Settlements, published a few days ago, show that at the end of last year banks outside Greece had lent $146bn to Greek banks, companies and the public sector - down from $171bn three months earlier. And, of this, loans to the public sector (largely holdings of Greek government bonds) were $54bn.

To be clear, this doesn't take account of exposure through derivatives, credit commitments or guarantees. So the world's banks probably have a further $100bn exposure to Greece.

The sums at risk therefore look serious though not - on their own - potentially disastrous for the health of the financial system.

Now as luck would have it, the banks most at risk happen to be those of the eurozone's two largest and strongest economies, Germany and France. The exposure of German banks to Greece is $34bn, including perhaps $20bn of loans to the Greek government, while the exposure of French banks is $57bn, of which again around $20bn is probably sovereign lending

Now because of what some would say is the madness of how the global Basel rules - that measure the strength of banks - are applied, there would be a double whammy for eurozone banks if there were a write-off of Greek sovereign debt.

The banks with Greek sovereign exposure would have to reduce their respective stocks of capital by the amount of the loan loss. And they would have to inflate the size of their balance sheets, because the residual exposure to the Greek government would lose its official (and some would say insane) zero risk weighting. So the fall in the capital ratios of banks with exposure to Greece would be magnified in a painful way.

Of the larger listed banks, only one, the Franco-Belgian group Dexia, looks as though it would be seriously hurt by a Greek debt writedown. According to Morgan Stanley, Dexia has 4.9bn euros of exposure to Greek sovereign debt, equivalent to more than half the value of its equity capital. Dexia would be significantly weakened by a 50% Greek haircut.

Next at risk, according to Morgan Stanley, would be Commerzbank of Germany, with €3bn of Greek sovereign debt, equivalent to 15% of its capital. Meanwhile BNP Paribas and Credit Agricole of France, Erste of Austria, KBC of Belgium and Deutsche Bank of Germany all have meaningful though not devastating exposures.

Less visible is the Greek exposure of Germany's state backed landesbanks - which regulators tell me is considerable. But if they were to incur large losses on it, Germany could afford to recapitalise them.

So what is going on? Why are eurozone governments so wary of a restructuring or haircut of Greek sovereign debt, given that banks in the round won't be killed by the consequential hit?

There seem to be three reasons.

First, in Germany, it is apparently politically more acceptable to provide rescue finance to Greece directly than to rescue German banks that foolishly and greedily bought Greek debt for its relatively high yield.

Second, a Greek debt restructuring would be a severe blow to eurozone pride in the strength of the currency union.

Third, a Greek haircut might be the thin end of a large wedge. If it created a precedent for haircuts in Portugal and Ireland, the losses for the eurozone's banks would begin to look serious. But again, if there were just a trio of national debt haircuts, if the rot were to stop with Ireland and Portugal, eurozone governments could afford to shore up and recapitalise their banks.

That said, what the eurozone could not afford - or so regulators fear - would be haircut contagion to the likes of Spain and Italy.

But Spain and Italy are looking in better shape. Spain, for example, is taking steps to strengthen its second tier banks and its banks in general have become less dependent on funding from the European central bank (which is a proxy for their perceived weakness).

So here, I think, will be what will determine whether Greece gets its haircut in the next two or three months: if eurozone governments come to believe that Spain is well past the moment of maximum risk of financial crisis, there will be a bold restructuring of Greek debt.

But, to use that awful footballing expression, if they do go for a Greek debt haircut or writedown, it will be squeaky bum time in government buildings all over Europe.

Comments

  • Comment number 1.

    That'll be the "A crop-olis", then.


  • Comment number 2.

    But Mr Big Banker doesn't think that's the right way forward. His reasoning is that he fears a debt restructuring would weaken many of Europe's banks, .......for reasons that slightly elude me, he sees that as a worse outcome than leaving Greece trapped in an unbreakably vicious cycle of economic decline.

    He is probably only looking at this with his banker hat on and not looking at the wider economic picture.

    The odd thing, however, is that the official statistics really don't seem to indicate that a haircut on Greek debt would be Armageddon for Europe's banks.

    What proportion of us still have faith in official statistics?

  • Comment number 3.

    Greece is going to default at some point - so just make it now and get on with it. (when in a hole stop digging)

    Then get the Greek people to actually pay the taxes they owe, two thirds of doctors dont pay taxes!! because no one actually checks their tax returns and then pulls them up for not being truthfull.

  • Comment number 4.

    As you suggest, Robert, if there is a Greek haircut, the temptation for Ireland to follow will be strong. And then Portugal, as I discussed the other day:

    http://zelo.tv/k019d6

  • Comment number 5.

    There is a Fourth, Robert, which is thinking your Third to its end; the rot is ubique!

    Any alternative treatment of sovereign debts other than printing new money which includes buying up old bonds, installing bad banks or QExyz will cause what we might have to call the €’s Domino Day; just like one country stepping out, only, one single hair cut will open the flood gates and the rest of the PIIGS alone will make the EURO implode immediately.

    But that is fine: we then had the opportunity to reset that stupid idea of forcing antipode-like economies into one buckled corset and call it Euro.

    caw

  • Comment number 6.

    The Greek case at least demonstrates the failure of the austerity cures all approach. A re-scheduling of debt combined with short term measures to get the economy growing again and modernisation of industry and state (e.g. effective tax collection) is the only way out of the mess. However it does beg the question of what happened to all that EU dosh that has been poured into the Med rim in the past

  • Comment number 7.

    The Greek debt should be decalred 'Odious' and Greece should be allowed to default. http://en.wikipedia.org/wiki/Odious_debt The contracts should be declared invalid due to the corrupt and coercive activities of Goldman Sachs and the current Greek Govt. Just why should the Greek state's assets be plundered due to the fraudulant activities of a private bank and succesive reprobate governments. 'In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing.' http://en.wikipedia.org/wiki/Greek_debt_crisis_of_2010

  • Comment number 8.

    Surely part of the reason is that nobody trusts the Greek government to continue reforms and austerity without a crisis hanging over its head. Once the haircut is imposed and the debt is manageable, the Greek government will shelve the privatisation programme, stop laying off unnecessary workers and continue allowing ridiculously early retirement for all and sundry. The one thing the current policy of fudge/recurrent bailouts has going for it is that as long as the Greeks are desperate they can be forced into making the reforms which will prevent the same situation recurring a few years down the line.

  • Comment number 9.

    Jeez Zelo #4 :: first on Steph's blog and now on RP's too. Pompous much?

  • Comment number 10.

    Good article here about Greek options and the ramifications of said options;

    http://www.zerohedge.com/article/greece-what%E2%80%99s-next-restructuring-when-sooner-you-think

  • Comment number 11.

    The way that all Governments are dealing with this crisis leads me to believe, that they believe the Mayans are right and we all get it next year,it appears to be the only explanation for the kicking the can down the road approach being adopted worldwide.

  • Comment number 12.

    Prediction: Greece pulls out of the Euro. New Greek currency created and will be overvalued 10,000 times against the Euro. Greece pays off its loans/debts etc and then devalues its new currency to equivalency. 24hrs - Job done. Wont even be called 'Misselling'. With its new AAA+ financial rating it can re-join the Euro

  • Comment number 13.

    What price a Spanish haircut at some stage, I hear the Barber of Seville is very expensive.

  • Comment number 14.

    Greek president George Papandreou should be put in jail, but then he IS currently the President of the Socialist International, a known neo-liberal anarchistic (i.e. deregulating) world-wide organisation. That under the banner of 'socialism', actually seeks to deceive nation states by subverting them through the privatisation of national states' assets all for the free marketeers. http://en.wikipedia.org/wiki/Socialist_International

    The Greek Govt pretends to be left wing but is in fact right wing by pandering to the free markets and big business. Here's one Euro politician with the guts to say it how it really is...(it's a must read btw)
    http://www.zerohedge.com/article/true-finns-timo-soini-releases-statement-why-i-wont-support-more-bailouts

  • Comment number 15.

    The reasons why Greece, Ireland and Portugal all ended up needing to be bailed out are different and logically there should be different ways for them to get out of their hole.

    Ireland was a combination of a property boom and a completely out of control banking sector (there are mutterings from the Irish about complicity of many politicians)

    Portugal had a bit of a property boom but fundamentally its problem seems to be a combination of a touch too much public spending and a private sector economy that is too dependent on tourism.

    Greece, and apologies to all Greeks who post here, is simply a failed state. Not a failed state in the Somalia sense, but a failed state in that fiddling the books seems to be a national past time, paying tax is for other people and spending money that you will never be able to pay is a long running national habit. I think Robert has pointed out in previous posts that Greece has defaulted several times on its national debt over the last 200 years.

    Ireland is paying the price for a political mistake when the crisis hit. They should never have agreed to support all bank creditors but should have made it clear that only depositors would get protection (say upto Euro 100,000). Any solution to Ireland's problem has to start from disentangling the state from this foolish promise.

    Portugal may just need a bit of austerity and an extension of its debt maturity. Fundamentally the economy will rebound as tourism picks up. A bit of debt forgiven (say 20%) would help but does not look too critical. What is needed is a re-balancing of the economy with less reliance on tourism.

    Greece, in its present situation, is beyond saving. Debt write off of 50%+ is needed. Greece should be kicked out of the Euro and told it will not be re-admitted until it cleans up its politics, changes the tax system and runs for at least a decade with an annual deficit of (on average) 0% of GDP which will have to be subject to independent audit. This may seem harsh but it is like dealing with a drug addict, first you have wean them off the drug then they have to show they have the willpower to live without the drug for an extended period of time

  • Comment number 16.

    Ask yourself this - 'Will the Greek government allow it's country to collapse into disarray with riots, strikes, 30% unemployment, public disobedience etc, or will it see pulling out of the Euro/defaulting etc as the lesser evil option?

    Yes, that's the obvious right answer. Why all this debate? The Greek vehicle has already left the cliff edge. We are just waiting for the bang.

  • Comment number 17.

    I don't know exactly how the haircut will work but I suspect clever operators will use the write down to grab assets at throw away prices.
    Will sharp suited lawyers be flitting about advising thieves, AKA bankers, how best to turn their dodgy loans into property?

  • Comment number 18.

    from
    Notayesmanseconomics blog:

    The proposed solution and why it won’t work? http://bit.ly/jZTqLd

    "How have we gotten here?

    When we look at how much money has been used to help Greece and how little
    progress has been made this is a very good question which I intend to explain.

    The current Greek economic problem

    Back to the 25th of January 2010 when I discussed a report from the Bank of
    Greece which indicated that Greece had a problem with economic competitiveness
    for the following reasons.

    1.Fiscal profligacy and a large government sector which has risen by 6
    percentage points of gross domestic product (to 51 per cent) since Greece
    joined the euro zone. Remember this was in a period of robust growth when
    fiscal adjustment should have been implemented but in the opposite direction to
    what actually took place.

    2.Rigidities in labour and product markets have contributed to persistently
    higher wage and price inflation than in the rest of the euro area, undermining
    competitiveness.

    3. Rising fiscal deficits have pushed up borrowing costs, adding to those
    deficits and creating a vicious circle.

    4.The expanded public sector has eroded the export base and exacerbated
    inefficiency.

    The overall effect of this has been to leave Greece with two large deficits,
    one is fiscal the other is external. This has been exacerbated by the fact that
    the Greek government has proved unable to produce economic figures which are
    reliable. Any element of doubt about its honesty has been removed over time by
    the fact that its figures for Greece’s fiscal deficit are always having to be
    revised upwards. We can see now that governments of both hues have suffered
    from this weakness.

  • Comment number 19.

    Citigroup's 20April research note on Greece also highlights that delaying the restructuring by one year from 2011 to 2012 will increase the "haircut" on total Greek debt by an additional 10% to 12% as the debt outstanding continues to rise. They quote a reduction of debt to 90% Debt/GDP in 2011 requiring a haircut of 52% but rising to 63% if delayed to 2012. So the clock is ticking...

  • Comment number 20.

    Obviously banks who hold a lot of sovereign bonds will hate the idea of a round of "haircuts". However for many months now the markets have been factoring in the risk of haircuts being applied to the sovereign bonds of the PIGS. There is no exchange risk for investors elsewhere in the Eurozone, so the high rates demanded by the markets must reflect only the risk of default.

    Anyone who still holds these bonds must know the risk being taken and is gambling on the IMF and the ECB stepping in, supporting the PIGS, and forcing cuts on their citizens.

    Why should citizens accept extreme austerity so that these gamblers can win their bets?

    Lets have a good round of haircuts and even outright defaults.

    The PIGS have lost their ability to borrow at reasonable rates. Since they are denied the option of currency depreciation that the UK is using, shedding existing debt by haircuts or default and reversing cuts so as to re-stimulate production, is probably the only way in which they can recover market confidence.

  • Comment number 21.

    "this doesn't take account of exposure through derivatives, credit commitments or guarantees. So the world's banks probably have a further $100bn exposure to Greece."

    Hmm. The key word in that sentence is probably. Might your Big Banker friend be unkeen because he knows his bank is exposed via Credit Default Swaps? Do we now have any better idea what exposure banks have via CDSs than we did pre-Lehmans? Where does that $100bn figure come from; might it be $500bn? More?

    The problem - to be clear - is that the liability for CDSs on Greek debt *might* be many times greater than the liability on the debt itself. If you bought Greek debt, the most you could lose is the total value of that debt. If you sold CDSs on Greek debt, you could lose far more. There might - just might - have been an investment bank or two who believed the IMF/EU assurances that Greece wouldn't be allowed to default, and on that basis reckoned raking in some revenue by selling CDSs on Greek debt seemed like an easy easy way to make money - not, of course, that investment banks have ever before taken silly risks to make short term profit ;)

  • Comment number 22.

    To think, the Scots want independence so they can more like Ireland, Iceland and Greece!

  • Comment number 23.

    #17. At 11:54am 10th May 2011, prudeboy wrote:

    "I don't know exactly how the haircut will work but I suspect clever operators will use the write down to grab assets at throw away prices.
    Will sharp suited lawyers be flitting about advising thieves, AKA bankers, how best to turn their dodgy loans into property"

    -------------------------------------------------------------------------------

    The capitalist model in one paragraph

  • Comment number 24.

    The Greek government needs to cut public employee salaries by 10%.

    Simples.

  • Comment number 25.

    I don't believe that any Euro country will have to take a haircut on its sovereign debts.
    I too believe that the current approach - is the right approach, because in due course I believe that the cause of these crises will come to light i.e. very sharp consultants (like those at the huge investment banks) have used their sharpness to undercut Euro sovereign debt. In a sense the EU must know this too, or why would they be investigating major investment banks for collusion and nefarious other trading practices.
    Bailouts cannot clean out the "rot"; bailouts just bury them - under more and more debt. The "rot", like a cancer is called CDS/derivatives, and you stop this rot by cutting it out -literally, and then establishing a baseline for the bona fide debt.
    I hesitate to use the word "conspiracy", but the collusion involved in the European mess suggests a conspiracy to take each EU country down to the financial predicament of the United States of America in order to salvage the American feeral currency. This will not work, but it is (if true) very ugly.
    I believe that the EU Commission has the way forward - 1. investigation and then 2. into the courts.
    Perhaps the eurozone government heads (maybe the IMF) want to continue Greek lending because they know the truth, but have to await the proof. If any country should be in Chapter 11 bankruptcy protection, it is the United States of America. Have you analyzed that American debt (re GDP)? And now the Americans want to - not reduce the debt - but increase the debt ceiling; they can only do this because they have the reserve currency which greases the printing press.
    Fixing the United States' public finances won't fix the United States unless its banks are mended & regulated. Personally, I would cease trading with the US or minimize trading as much as possible. I would never buy her debt.
    The most relevant question is: when the United States loses its reserve currency, when the presses stop running, what will that tsunami do to the remainder of the world?
    Think about it.
    So, here's my bottom line: The Americans have wounded the world economy with a rot called CDS/derivatives @ 600 TRILION OF THEM. This is a lot of the rot, based on essentially nothing. This is economic cancer, and all EU countries have been contaminated to some extent...

  • Comment number 26.

    #25 Bluesberry
    ...600 TRILION OF THEM...
    The largest number I've ever heard for CDS is $61trillion. I believe you've shifted a zero and possibly blown a blood vessel from the hyperbole.

    There is an EU Commission report which shows that - notwithstanding any collusion - CDS played no part in the EU sovereign debt crisis.

    We look for devils where reality is too complicated.

  • Comment number 27.

    Did the Greek people ask for the Euro? Did they have any choice from their 'politicians'?

    The only people in Greece who appear to benefit from Euro currency bail-outs are the aforesaid Greek politicians. Corruption is a strong word. Greece, before the Euro, as a currency was imposed, seemed to be doing perfectly well with the Drachma, that suited their own culture and their own way of business.

    Every nation has the right to retain their sovereign currency. Why does the European Union or the European Commission have the fascist right to demand entry to the Euro as a currency as a prelude to entry to the European Union?

  • Comment number 28.

    Robert,

    You make plain the "Catch 22" that the governments have got themselves into. They cannot allow Greece to default because it would precipitate a huge banking crisis centred in their own countries. This would lead to either further major banking bail outs or bank failures. Bank failures 'to big to fail' was what our governments have bent over bankwards to avoid no matter what.

    On the other hand if they keep bailing out Greece as they are and will continue to do, the problem remains except it gets worse.

    Time becomes more expensive the harder you try to buy it.

    Greece is broke. In the end the Greeks themselves will simply default, driven by the reality of their enormous debts and huge deficit.

    Default on debt = get rid of deficit.

    In the meantime we can worry about RPI here hitting 6% in the next few weeks.

    My guess is that the BOE will do nothing until RPI hits 7% which it will by the autumn.

  • Comment number 29.

    #26. OldPerson wrote:

    "#25 Bluesberry
    ...600 TRILION OF THEM...
    The largest number I've ever heard for CDS is $61trillion."

    What does it matter either figure is completely economically unsupportable and indicates a full blown economic collapse without the option!

    And the sooner it happens the sooner we can start to recover (oh and every financial 'institution' on the planet that gambled in the market has lost and is a dead man walking!

  • Comment number 30.

    In support of Bluesberry visit the US debt clock. The value of their CDS is

    $572 453 026 000 000

    and counting.

    They are so broke but apparently it's all insured so it's OK to get even more broke. Now it's a bit hard to pin blame and stuff but I have a suspicion the insurance brokers are like offshore and could well be digging deep into our pockets when called upon to pay up. As they most certainly will.

  • Comment number 31.

    Is there not a possibility that a Greek default will actually bring about banking reforms by the backdoor; that necessity will compel what political backsliding utterly failed to bring about?
    With savers/deposit accounts government-backed worldwide (and therefore limited scope for bank runs) then surely it's only a good thing that banks take the hit for their awful investments. By backing deposit accounts but letting the other side of the banks fair for themselves governments could back the socially essential part of the banking system whilst desocialising the rest, leaving it where it belongs - in the free market.
    The effective split between retail/investment could then be codified legally. Amidst the undoubted chaos this would cause to the investment banking world the retail sector would be as insulated as possible. This insulation would encourage new start-up retail banks and diversification of the market. Rather than the depressing spectre of QE bypassing the retail sector completely and being invested in assets we could have a retail sector with a modest outlook that provided loans to businesses and liquidity for the market.

  • Comment number 32.

    On the wider issue of how to handle the debt crisis...

    The size of the global debt is so huge that the system could only support it through continued exponential expansion... so when the debt train hit the buffers the whole edifice must collapse - there is no choice in the matter.

    And the sooner it does then the quicker the fall-out (haircuts and repossessions) will be over and the quicker things (both personal and business) can return to normal.

    Please can someone argue the opposite? Particularly looking at the consequences from the day to day life of everyone v.s. the maintenance of unsupportable and unfinancable debt. Is it better to have food or a house over your head - both figuratively and actually fro both individuals and countries? - as you can't have both (becasue of the stupidity and ignorance of the regulators, the regulatory system and the banks.)

    We must draw a line under past to start again!

  • Comment number 33.

    Robert P

    Maybe your Big and Influential Banker friend is perhaps NOT as clever or from the rich pool of Talent that we are all told about far too often.....

    Maybe he / she is away with the fairies and has been for a while, whilst occasionally masquerading as an important banker and reaping the rewards from you, me and everyone else on this blog ?????

    Just a thought.............. We all know what has to happen and all of us whom are sensible KNOW that things have to be paid for ....... that's the nature of business...


    The sooner we get on with it the better...

    Regards

    Ganretti

  • Comment number 34.

    Bearing in my the recent record of banks, I'd be tempted to do the exact opposite of what your banker friend wants.

    In fact, why doesn't he keep his nose out of the whole mess and carry on with selling PPI redundancy cover to the self employed?

  • Comment number 35.

    @24. At 12:32pm 10th May 2011, David Evershed wrote:
    The Greek government needs to cut public employee salaries by 10%.

    Simples.


    The same Should happen in the UK as well, in my humble opinion....

    Regards

    Ganretti

  • Comment number 36.

    #15. Greece, and apologies to all Greeks who post here, is simply a failed state. Not a failed state in the Somalia sense, but a failed state in that fiddling the books seems to be a national past time, paying tax is for other people and spending money that you will never be able to pay is a long running national habit.

    I think you have described the crux of the problem. How can you have any serious recovery when you have 3rd world levels of corruption.

    I am surprised that a condition of rescue packages hasn't been to force the Greeks to ban the use of cash. The EU governing elite could then use Greece as a trial run to see how forcing a cashless society works out, before rolling it out further across the EU. Surely complete control of everyone's financial activities is a goal they are after?

  • Comment number 37.

    If the bond holders take a "haircut" then they should learn lesson not to lend to those countries again, but the country may not reform to be in better position for the future
    If the country is forced to take EU/IMF loans then they should be force to reform their economies for better future.
    What countries like UK have to watch out for is that we do no reform and rebalance our economy to compete with the lower costs in Greece, Portugal, Ireland, Spain, etc.

  • Comment number 38.

    Mr Big banker is right you are wrong.

    At present Greece needs to borrow and who in their right minds is going to lend to them when they may not get all their money back.

  • Comment number 39.

    @Old Person (26).

    Just to clarify, I wasn't suggesting CDSs were involved in *causing* the Euro sovereign debt crisis (others might have been).

    But what I was suggesting is that it's at least possible they're part of the problem in resolving it. A CDS is essentially a bet on something going bust. If Greece does go bust (or "take a haircut"), a bank on the "wrong side" of that bet would be in trouble. Except, of course, we've all learnt that "a bank would be in trouble" actually means "a government would be in trouble". Which *might* explain the preference for bail outs (which don't trigger payment on CDS bets).

    *If* there are lots of CDSs swilling round for Greek/Irish/Portugese sovereign debt, then

    (a) those who stand to win on those CDS bets have a big vested interested in the country taking a haircut - those potential "winners", of course, being precisely the same banks which make the market in sovereign debt, forcing bond yields to their current highs...
    (b) again, I stress *if* there are large CDSs out there, it rather looks like there would need to be an "all bets (sic) are off" declaration on all CDSs on that sovereign debt, before the haircut could happen. But getting the (potential) winners on the CDS bets to agree to that would be tricky, to say the least. Indeed, it would only happen if they knew there was no chance they'd get their money. Which means they'd need to be convinced that if they didn't agree to "All bets are off", the banks on the losing side would be allowed to fail. And we still haven't found a mechanism to allow that to happen...

    I'm not sure this is what's happening. After all, a bank betting Greece won't go bust would be pretty dumb. It would be nearly as dumb as betting someone with no income, no job and no assets could repay a huge mortgage....

  • Comment number 40.

    Look Guv, I've got a perfect track record, never missed a payment, business plan is AI. Top notch. And I only need one million pounds. Come on look you'll get it all back - plus interest. What you say 5%, 6%. What, 23.7%? Come on, be reasonable. Business is just bound to work.................

  • Comment number 41.

    I have a very bad feeling about this whole situation. I may be wrong but can foresee "money" becoming totally worthless. My Father came from hungary and I remember him telling me about when they had hyper-inflation. His wages for a week was supplied in notes that filled a wheelbarrow, it was not enough to buy a loaf of bread, so was used to help fuel the fire to heat the home. I have a little savings, but feel very nervous, thinking about withdrawal and stocking up on non-perishable goods that can keep us fed and can be traded in a crises. I may sound like a doom-monger, but with the recent events in this world, there certainly seem to be a bit of a storm brewing in the aftermath.
    By the way - I posted a blog earlier on a different forum regarding the "The Apprentice", It now seems that that blog has been pulled by the "impartial" BBC, could this be because most postings were very negative?

  • Comment number 42.

    At 14:50pm 10th May 2011, Mortgaged_Mike wrote:

    "A CDS is essentially a bet on something going bust."


    Only for one participant. The other participant is betting that it won't go bust.

  • Comment number 43.

    31. At 13:11pm 10th May 2011, richard wrote:


    "we could have a retail sector with a modest outlook that provided loans to businesses and liquidity for the market."

    If we want to insulate the retail sector from the rest of the market than it can neither offer loans to businesses nor liquidity to the market.

    Most of the blogs complain about "cheap" retail deposits subsidising other banking activities. This suggestion does not remove that.

    Retail deposits would have to be invested in government securities.

  • Comment number 44.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 45.

    To Mr.Peston and blogger
    I my be old and naive bat i do not agree with any of the comment.
    In Greece case yes corruption and tax evasion are part of the problem bat are not the problem.
    For Greece and the rest of the world the problem is the current system were the financial lobby decide for the rest.
    Democracy is dead the 10% of the population are in charge of all our live.
    This must change with immediately effect or will see more and more and more country in trouble with the majority of population living under the poverty line.
    John Saguato

  • Comment number 46.

    # 41 Tim from Sandhurst wrote:

    >'I have a very bad feeling about this whole situation. I may be wrong but can >foresee "money" becoming totally worthless.'

    Have you read this book?

    'Dying of Money: Lessons of the Great German and American Inflations'
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7909432/The-Death-of-Paper-Money.html

    Apparently it was de riguer for all bankers last summer, though at $699 a piece only they could afford it.

  • Comment number 47.

    After the Eurovision song contest on Saturday night, the consesus will be that all of Europe needs a haircut!

  • Comment number 48.

    OFF TOPIC!

    Things getting you down...?

    Click on this link for some relief.

    http://uk.news.yahoo.com/%E2%80%98talking’-dog-wows-the-web.html

  • Comment number 49.

    This banker sounds like Del Boy.

    Haircuts *all* round. Break up the banks. Stamp out tax corruption. Apply "austerity" to the rich, not just the poor.

    Kick the toffs out of the Commons and put them in the Lords, or the Tower.

    All this sneering about Greek tax collection - Sir Philip Green, anyone?

  • Comment number 50.

    Perhaps a hair cut for the rich would be a great benefit to us all. They would have less money to speculate in the commodoties market and the price of food and fuel could settle again at a sensible level.

    Besides, the current world wide obsession with shifting money from the poor to the rich at a shocking and incredible rate (which CEO of a bank really is worth 350x as much as other people) and the amount of tax fiddles they are allowed (own half the high street in every UK city - oh well, no tax bill for you then) is not sustainable.
    The real reason the west is not really intervening much in north Africa and the middle east is that they see the same snowball coming here at some point.
    Yes folk, when you stop believing the Daily Mail and start realising we are all taken for a ride then revolution will occur

  • Comment number 51.

    The debt is the problem and it needs to be talked about. It has been a major failure by governments not to grasp this critical issue preferring to kick it into the long grass and just talk about recession and recovery. This is not a recession it is a slump and there won't be any recovery until the debt issue is resolved. The debt can be resolved either through a structured process which will hurt all parties and elites in particular, or one huge great indiscriminate crash. I know what I prefer so let's get on with it.

  • Comment number 52.

    Yes, Robert, your banker's comments you mention in your blog are certainly curious, but certainly not unexpected?

    That's the name of the game Mr Peston and all readers of your blogs we understand the game - when most will have done the usual trader thing - sell in May (commodities in particular) and gone away. No story - just the same old, same old? Hopefully, this post will cause no offense - and not be removed?

  • Comment number 53.

    I wish your article had begun: I was at a prison interviewing one of the leading bankers of Europe....
    The very banks that sent their rating agencies to Greece and said they did not have to worry about borrowing in the 1990's now take their holy and moral position on the money they are owed from following their advice. What did you expect the banker to say: "We accept responsibility for the financial crisis we created through the purchase of political favors that allowed us to gamble the money of the people away and now we will help in anyway to correct the problems we have caused." You are talking to a banker....if you haven't learned anything from the financial crisis you should have at least learned not to trust anything they say or that they have any other interest than personal greed.

  • Comment number 54.

    Until recently 'poor' Euro countries received lower interest rates because they were percieved as safe. If some Euro countries are seen to walk away from their debts then the difference in rates at which the 'rich' and 'poor' countries can borrow will widen making the 'poor' countries even less competitive.
    The Euro countries either need to stand together or acccept that a single Euro doesn't work for all.

  • Comment number 55.

    OFF TOPIC!

    Sorry... I gave you the wrong link at post 48.

    Try this one:-

    http://www.youtube.com/watch?v=nGeKSiCQkPw

    Hopefully, this will give you a little relief!

  • Comment number 56.

    46. At 16:37pm 10th May 2011, museV wrote:
    # 41 Tim from Sandhurst wrote:

    >'I have a very bad feeling about this whole situation. I may be wrong but can >foresee "money" becoming totally worthless.'

    Have you read this book?

    'Dying of Money: Lessons of the Great German and American Inflations'
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7909432/The-Death-of-Paper-Money.html

    Apparently it was de riguer for all bankers last summer, though at $699 a piece only they could afford it.

    Wow! very informative, maybe I am not as financially naive as I take myself to be

  • Comment number 57.

    Serious problems require decisive action - quick fixes are... naive!

    This 'crisis' has been bubbling away for more than two years whilst the cognoscenti refuse to accept that 'sticking plasters' will not cure the problem.

    The 'funny money' approach adopted to date has only resulted in record commodity prices, nascent inflation, and stock market valuations that bear no resemblance to corporate performance.

    It's almost as if Hollywood has taken over the reins. Politicians and central bankers seem to delude themselves into believing that everything will be OK if we employ the latest wheeze. Too clever by half.

    When, oh when, will these people have the courage to face facts and act decisively? Pretense is a mug's game that can only end in tears.

    We are adults... we know there is a problem... please fix it - permanently!

    (Glass Steagall would be a good start - but on past performance, it won't happen until this train crash becomes wreckage)

  • Comment number 58.

    #39 Mortgaged_Mike
    But what I was suggesting is that it's at least possible they're part of the problem in resolving it. A CDS is essentially a bet on something going bust. If Greece does go bust (or "take a haircut"), a bank on the "wrong side" of that bet would be in trouble.

    I'm certainly no expert but my best guess is that the unbacked CDSes, i.e. those which are not insuring a real risk but are just speculative - are not held by banks. The banks would be those holding CDSes on bonds they own against the risk of the bonds defaulting. I think the speculative CDSes would be held by hedge funds and similar.

    That raises a couple of points.

    (1) EU governments have professed in the past a certain loathing for hedge funds. That may be one reason why they want to avoid default which triggers CDS payments. There may be a 'controlled default' option which does not.

    (2) Why are they so worried about their banks ? Will not these banks have taken out CDSes on their bond holdings ? The only exception to that - for ideological reasons - may be the ECB - which is, I believe, also one of the largest holders of Greek bonds.

  • Comment number 59.

    Agree with comment 15.

    This also gives some glimmer of hope: Greece is so fatally bust and the will to pay for it is so completely lacking there that to compare it to Ireland or Portugal should be considered insulting. After rigging their books to get admitted to he Eurozone, they rigged them some more when they were in. Greece would be in this mess no matter where the global economy went.

    They default, and they get ejected form Euro - there is no other way. They can then print as much money as their hearts desire, and Drachma will once again be the legend it was when we were young. Expect the price of paper to rise a bit.

  • Comment number 60.

    #49 wrote "All this sneering about Greek tax collection - Sir Philip Green, anyone?"

    The fable raises its head yet again.

    How can I put it simply. Philip Green does not avoid UK tax. He is, I understand still tax resident in the UK and pays UK income tax on his income including share dividends. It is his wife who lives abroad and therefore does not pay UK tax on share dividends. It is his wife who owns all the shares in Arcadia Group and hence it was ultimately his wife who borrowed a lot of money from banks to buy half the UK high street. That is not tax avoidance but the inevitable consequence of a policy change made 25 + years ago under which HMRC treated the husband and wife as 2 independent people with there own separate tax affairs.

  • Comment number 61.

    Wow Robert....

    "Wouldn't it be better to cut what Greece - or Portugal or Ireland - owes down to a manageable size, in tandem with the imposed shrinkage of its public sector, to put its public finances back on a basis that is sustainable for the long term?"

    All of a sudden you are supporting massive cuts to the public sector, when did you undergo this sudden transformation ?

  • Comment number 62.

    This is spot on as usual.

    I do however have a query and some related comments.

    Under Basle I exposure to Greek bonds would carry a zero risk weight. You seem to suggest this continues to be the case now under Basle II/III, where risk weights should be determined by risk models. If any bank risk model attaches a zero risk weight to Greek bonds today it would not only be insane, but it would also suggest that the supervisory review process (Pillar II in Basle II) is criminally negligent, encouraging banks to gamble with high yielding junk bonds and then to lobby to prevent the (now necessary) restructuring.

    If you are right with the zero risk weight, the bankers' 'parties' will no doubt continue with the bonds of all the troubled countries, as long as the politicians and the eurocrats continue to resist haircuts.

    This seems, however, like an unsustainable game. Unless of course Germany leaves the eurozone which is probably the only scenario that will generate growth in the periphery, as the euro will then depreciate sharply and competitiveness will return. Moreover, that will make a fiscal union more likely, which is what is needed for a currency union to work. In economic terms it is probably the best way forward as we may avoid another round of bank bailouts. Politically, however, it is a long shot, although many Germans do remain nostalgic aboout their long lost DM; their exit from the euro will be interpreted as a sign of relative economic strength and an end to what they see as 'subsidising' the periphery. For more on this see:

    http://givegoodeconomicsachance.blogspot.com/




    It is not surprising that the banks that have lent to Greece want to avoid restructuring at all cost (to others). Note that the ECB will also take a hit and that explains why it is resisting.

  • Comment number 63.

    Sounds very much like a lot of german (and other banks) are carrying greek debt on their balance sheets at far more than it is worth. Haven't we been here before with subprime mortgages?

  • Comment number 64.

    The logic of implying that a Greek default would put paid to the euro escapes me. Several states in the USA are just about to default, or are as good as defaulted and have been for quite some time. End of the dollar? If an end comes about, it won't be for that.

  • Comment number 65.

    64. At 21:28pm 10th May 2011, Pan Albert wrote:

    The logic of implying that a Greek default would put paid to the euro escapes me. Several states in the USA are just about to default, or are as good as defaulted and have been for quite some time. End of the dollar? If an end comes about, it won't be for that.

    =====================================================

    Maybe it's all to do with the risk premium. Like an empty dance floor, once someone breaks the ice everyone is happy to join in. What's one more default... we've been there before - so what? We'll just jack up the price of credit.

    But wait... surely there will be a final reckoning in due course?

    Oh yes, that's for sure!

    It may take six months or even a year or two. One thing's certain though, the longer this foolish behavior continues, the more painful it will be.

  • Comment number 66.

    Surely the sky high rates of short term Greek government debt means that a haircut has already been factored in by borrowers.

    There seems to be a classic games theory conflict on between the EU governments and the ECB on one side and a number of major banks on the other with the Greek public caught in the middle. The question is who will win?

    Some banks have gambled that the EU governments won't call a haircut as more and more of the debt is now owed to the ECB and governments rather than banks as was the case in ghe past. They are looking to make huge profits as long as there is no haircut. If there is a haircut they could lose billions.

    Other banks took the chance to offload their debts to a mug punter i.e. you and I via the ECB and EU governments. The question is who will be proved right?

    It is interesting that one of Lehman's biggest gambling partners Dexia who has already been rescued once

    http://news.bbc.co.uk/1/hi/business/7643638.stm

    may need another bailout because of reckless lending to the Greeks.

    Why should we be surprised?

  • Comment number 67.

    60. At 20:05pm 10th May 2011, Justin150 wrote:
    #49 wrote "All this sneering about Greek tax collection - Sir Philip Green, anyone?"

    The fable raises its head yet again.

    How can I put it simply. Philip Green does not avoid UK tax. He is, I understand still tax resident in the UK and pays UK income tax on his income including share dividends. It is his wife who lives abroad and therefore does not pay UK tax on share dividends. It is his wife who owns all the shares in Arcadia Group and hence it was ultimately his wife who borrowed a lot of money from banks to buy half the UK high street. That is not tax avoidance but the inevitable consequence of a policy change made 25 + years ago under which HMRC treated the husband and wife as 2 independent people with there own separate tax affairs.

    That's ok then is it?

  • Comment number 68.

    66. At 22:06pm 10th May 2011, Ian_the_chopper wrote:

    Surely the sky high rates of short term Greek government debt means that a haircut has already been factored in by borrowers.

    =================================================

    And how short would sir like it?

    Baldness is nothing to be ashamed of.

  • Comment number 69.

    Comfortably numb, post 68, a number 4 on top and a 3 round the sides and back for me please.

    I was merely stating what is surely obvious from the current rates being got on two year Greek debt. The rate is merely a reflection on the likeliness of a default or haircut being imposed. The extra interest rate is a trade off as a gamble against the haircut with the higher interest rate being demanded for this risk.

    To follow on from your name sufrely for the Greeks the correct Pink Floyd song is "Wish you were here".

  • Comment number 70.

    69. At 22:45pm 10th May 2011, Ian_the_chopper wrote:

    'To follow on from your name surely for the Greeks the correct Pink Floyd song is "Wish you were here".'

    ================================================

    Ahhhh!... a knowledgeable poster with good taste!

    I fully understand your point - my concern is that the risk being accepted may be bigger than expected. If something's going down, I steer clear. 25% of nothing is zilch!

    Ethics, reputation, trust - all gone!

    I'd buy Gold and watch as the painful drama unfolds. But hey! - with my tastes in music, what do I know?

    Your's is a good choice of track, but perhaps on this occasion we should settle down with a very large malt and enjoy 'Dark side of the Moon' - just to get in the right mood!

  • Comment number 71.

    12. At 11:21am 10th May 2011, Seer wrote:
    Prediction: Greece pulls out of the Euro. New Greek currency created and will be overvalued 10,000 times against the Euro. Greece pays off its loans/debts etc and then devalues its new currency to equivalency. 24hrs - Job done. Wont even be called 'Misselling'. With its new AAA+ financial rating it can re-join the Euro

    --------------------------------------------

    Why bother re joining !
    'Get in first'
    Stay out with a devalued currency and get all those tourists flocking back in bulk, cos its nice & cheap. Hoover in all the tourist trade then watch the other Mediterranean countries loose theirs and scramble to do the same.
    Its the only way...... OUT !
    I think I may have some old Pesetas lying around :)

  • Comment number 72.

    Or why dont Greece, Ireland & Portugal leave the Euro and get their old currencies back. Deflate and export and trade their way out of trouble (like the UK).

    Ahh yes not an option because the Euro is a political project and not economic. I feel sorry for the people of those countries that have to suffer so the undemocratic nightmare called the EU continues!

  • Comment number 73.

    So.... the banker thought it would be a disaster to impose a haircut...

    But a disaster for whom exactly.

    Not me, thats for certain. I made sure a long time ago that I have no direct exposure to gilts. But would I have exposure to a bailout, well yes I have no choice if my dumb government decides to take part in a bailout.

    So back to my question...disaster for whom? Bondholders...? I don't care about them, they are bondholders by choice and taking the risks by choice.

    I'm quite happy to see bondholders suffer in preference to taxpayers.

    And before anyone says "well yes but taxpayers have guilts in their pensions"...well more fool them if they haven't changed their investment strategy by now.

  • Comment number 74.

    Think of all the funny money that has been printed.

    Think of the inexplicable increases in stock indices.

    Think of the record prices for commodities and bullion.

    Think of central bank interest rates.

    Think of inflation.

    Think of ALL THAT DEBT.

    'So you think you can tell heaven from hell...!'



  • Comment number 75.

    How objective is the opinion of this influential banker?

  • Comment number 76.

    Reading this topic it seems that RP has very much got caught up by a vested interest.

    Greece will default at some point , it is inevitable either it does it now or waits until the population get fed up of collapsing living standards and they do the job by disposing of their government in favour of one who will default the debt.

    The bankers are just hoping that asset sales can be completed before either event happens or that they can con the governments to bail out yet more of their poor decisions at public expense.
    One should expect that all affected people who have bought Greek debt or made loans to Greek banks throughout Europe between the dates when some banks helped fiddle Greeces books and when it was discovered should expect some investigation of their dealings in all matters Greek.

    p.s. if the as the banks claim CDS etc are insurance - have they paid insurance tax premiums on it? If not perhaps they should be prosecuted for tax evasion?

  • Comment number 77.

    #8 CountCagliostro

    When you refer to Greeks , you are refering to the Greek government .

    The Greek government can privatise ; but it may not have sufficient control of the people . I think it's true to say that the Greek people blame their government for getting them into this state of bankruptcy . As in Ireland and Portugal , the Greeks have fiercely demonstrated against the austerity and are not likely to cooperate , work their buts off , pay lots of tax , to help their country's insolvency .

    Much is currently being said about the PIIGS ; but in this case the EU and Banks won't let the RATS leave the sinking ship .

  • Comment number 78.

    Greece should default sooner rather than later ; never mind the Euro , the EU , banks or bond holders ; or if the ECB goes bust . For the good of its people Greece should never have joined the Euro .

  • Comment number 79.

    Hi Robert, The current debt crisis was caused by irresponsible banks claiming quality profit early on loans that were never going to be repaid. Therefore, they got the profit early and headed for the hills; we got the bill (i.e. the wrongly claimed profit)later and will be paying for years.
    Now it seems that governments are as bad as banks - they lend money to other (sub-prime) governments that will never repay, claim the quality profit position and now here comes another bill. Like a bust buy to let (or lie to bet) landlord, Greece and others borrowed money they couldn't repay and the EU lent it to them. In growth economies, this could arguably be absorbed - in shrinking economies - the truth comes out. At least this time, your information informs us ahead of the event, so well done. If we end up dismantling the Euro - the markets will give us all continual haircuts on the divide and rule principle. So, the big question is - how do you manage the markets, so that they cannot prey on the weak or create false positions, take the money and run and leave us with a succession of bills - another form of haircut after haircut after haircut. I seem to remember that SSAP practice was - don't take a profit until you realise it; if you see a loss, provide for it. We should make that law!

  • Comment number 80.

    At 15:52pm 10th May 2011, treacle_01 wrote:

    Most of the blogs complain about "cheap" retail deposits subsidising other banking activities. This suggestion does not remove that.

    Retail deposits would have to be invested in government securities.


    The key phrase is 'other banking activities' - the point of separating retaila nd investment banking activities is not to create a perfect system but simply one that reduces the levels of interconnectedness between the socially essential utility banking and the non-socially essential investment banking.

    Of course if we want to reduce government exposure and create a truly free market banking system then we woldn't back ANY deposits and would let all banks fail and whilst that would follow the (skewed, liable to manipulation) 'invisible hand' the costs socially and systematically would be horrendous. So we simply have to accept an imperfet system and protect the essential without creating a safety net for more speculative activities.

    Any suggestions of retail banking that I have read have envisioned a diverse, highly local sector with strong requirements for reserve capital levels, held largely in givt securities, as compensation for deposit accounts being backed by the government.

    Of course I'd also like to see a stringent application of the Volcker Rule as well - it's ludicrous that investment banks can be advising customers on deals and options that they themselves then bet on internally. Anyone can make money when the game is rigged like that. Unequal levels of information totally distort market principles. This isn't the free market it's a plutocracy. But that's another story for another day.

  • Comment number 81.

    #15 Justin150
    Seems like a fair analysis and a sound plan. Will therefore have no chance whatsoever of being put into practice.

  • Comment number 82.

    67 Good point.

    it is always nice to see HM Treasury hoisted on its own petard. In their avid desire to screw little old me and the missus out of our tuppence half-penny, they allowed bigger fish an ocean to swim around in. Obviously HM Treasury takes the view that if you look after the pennies the pound can always escape overseas. No wonder we are broke.

  • Comment number 83.

    I personally suffered a haircut with Agentine Govt. bonds. I got 33% of my investment back. So what , I was happy to get a yield of 11% and when I lost out it was my problem. Argentina has a much larger economy that Greece, Ireland and Portugal combined!

    The Euro zone founders should never admitted half the countries who are now members. It should started with Germany, France, and the Benelux countries. Italy shamelessly cooked the books to join. Does anyone remember what the Italian Lira was like. A joke currency.

    Diverging interest rates and diverging economies are the result. Menem in Argentina thought he could peg the peso to the dollar with disasterous results.

  • Comment number 84.

    But Robert ... isn't the ECB the bank that the EU is really worried about? Isn't their exposure to Greek (and Irish and Portuguese) debt enormous, and how much would a haircut affect its own solvency?

    It seems clear that the ECB would need the biggest bailout in the event of any restructuring and that's the real reason why the muddling through will continue.

    Maintaining the prestige of the EU's own institutions is being prioritised over the long term solution to Europe's economic problems, and given the effect of these problems on people's everyday lives - their jobs, the public services on which they depend - that's an utter outrage.

    The reality is that, while they were not responsible for the economic shock, the EU has created a massive mess with its flawed single currency that was always predicted to lock in problems in the event of a downturn.

    Thanks to the hubris of Europe's political class in recent decades, there's now no painless solution. Debt restructuring, a 'new drachma' and support package for affected banks is the only coherent turnaround strategy for Greece long-term.

    The question is; how many more hundreds of billions of public money Europe's politicians will flush before they too recognise that the euro experiment has failed and finally let it go.

  • Comment number 85.

    Of course bankers want a Greek haircut to be delayed as long as possible. The current interest rates on Greek debt give them large short-term profits and bonuses: provided Greece defaults after these have been paid they have little to lose (and they probably also kid themselves that they will be able to dump the bonds, or insure them via CDS, before disaster strikes). Any bank that's on the 'wrong' side of derivative contracts has the same incentive: the longer the delay, the greater the profit.

  • Comment number 86.

    Any private bank that still owns Greek debt is already bust. Given the ECB has been a buyer for over a year then there was plenty of opportunity to offload it, albeit at a less than face value.

    If they didn't choose to do it, it means that even that limited haircut was going to break them. So when (and it absolutely is a when, anyone with even a limited grasp of basic math can work that out), then the big loosers are going to be these weaker banks and the ECB. But... The ECB isn't really a proper bank at all it's simply a proxy for the other central banks and they are going to be the ones taking a 50% hit on 75Billion plus of debt. You can see why the governments behind those central banks would want to keep the fallacy of Greek repayment alive for as long as possible! Imagine the Bundesbank (Or the Bank of England)) having to explain write off on such a monumental scale, it won't be pretty.

  • Comment number 87.

    #69 and 70

    I couldn’t resist…





    So let me in from the cold
    Turn my lead into gold
    Cause there's a chill wind blowing in my soul
    And I think I'm growing old



    A song for Greece maybe?

    But will the Turkey’s vote for it?



    Interestingly it was Pink Floyd’s financial advisors, Norton Warburg’s, failure that helped to prompt more regulation in the form of the Financial Services Act 1986.





    “This case generated a lot of publicity because the victims included members of the rock group Pink Floyd, but was unusually sensitive because it made both the Bank of England and the DTI look particularly incompetent. The Bank of England had sacked a number of people after exchange controls were abolished in 1979, and in doing so had advised them to invest their redundancy money in Norton Warburg. The DTI was embarrassed because it had renewed Norton Warburg’s registration to practice despite the fact that Norton Warburg’s auditors had qualified their report and so warned them of their doubts about the firm. It was not for nothing that the satirical magazine, Private Eye, used to refer to the DTI as the Department of Timidity and Inactivity.”



    Comfortably Numb… because time passes… and nothing changes…

  • Comment number 88.

    78. At 09:01am 11th May 2011, Huaimek wrote:
    """Greece should default sooner rather than later ; never mind the Euro , the EU , banks or bond holders ; or if the ECB goes bust . For the good of its people Greece should never have joined the Euro."""

    Huaimek, we have already discussed that in Hewitt's page (by now unfortunately destroyed by the new format).

    Fact 1: In 1978 when the agreement to join the EEC was signed, Greece, despite inner problems of corruption and low international competitiveness, it indeeed had healthy businesses, a healthy production base, a basic social state and in general a very functioning economy which however was evidently in danger inside EEC, somethign really obvious even to the least knowledgeable Greeks who were overwhelmingly against the entry in the EEC (both left wing and right wing). The entry in EEC was justified by the ND party in the wake of the harsh NATO betrayal in Cyprus and Aegean and in Greece's urgent need to find a new strategic partner for geopolitical protection.

    Fact 2: The root of 85% of Greece's current debt (taking into account the interest increase) was created in the 1981-1990 period when Andreas Papandreou (a US half-Greek, half-American citizen, father of current PM Jeffrey Papandreou) took power on the promise to get Greece "out of NATO, out of EEC" and who did the exact opposite all while reducing Greece's presence in both, attacking all healthy businesses, nationalising all failed sectors that should close, installing a dictatorship-like party-cracy, multiplying party-corruption and cronyism, and transforming a coutnry of little entrepreuners into a sad dependent lot of public civil servants. The Papandreou-led PASOK has not left any sector in the country not attacked and as a flag of that one could not that it even fiddled with the language and the education (note the vertically falling standards in the Greek basic education since 1981, despite the rapid increase in the university graduates, this being rather the result of the Greek people's demand for education).

    Fact 3: Since 1975, there has not been a single Greek PM that has not been appointed by the US (no matter the anti-US rhetorics of Papandreou). Once the US had a trouble with one (Kostas Karamanlis, the nephew, who back in 2006 signed for gas deals with the Russians) and they had him out with the technically induced street trouble (we all saw in so many other countries recently in action). To be noted that out of Konstantinos Karamanlis, Andreas Papandreou, Konstantinos Mitsotakis, Kostas Simitis, Kostas Karamanlis and Jeffrey-Giorgos Papandreou only the two Karamanlis are of real Greek origins, all others are foreign people of both foreign origins as well as interests (some not even speaking the language correctly) - though both high members of ... the country's infamous ...lodges (to be noted that uncle Karamanlis was installed in Greece in the 50s by the British following the murder of PM Papagos by the British, what else!).

    Fact 3: Greece is a country under geopolitical attack. It is a country totally controlled to the last detail. It cannot decide upon itself, and it never did apart short periods where it tried to do so and which of course led to upheaval and even war. What the naif Europeans are not in position to understand is that Greeks' main fear is not even the financial collapse but the geopolitical isolation, war and loss of soverignty as the country is more and more left out and isolated by everyone in the last 30 years.
    .....
    ....

    Fact 99: The problem IS NOT financial. It was never financial, otherwise it would be solved overnight. Greece is under geopolitical attack and this not because EU too is under geopolitical attack, but it actually predates it. You have to realise that the country has never passed the danger of generalised war in the region, that hangs still and the likes of US (and Britain, oh yes...) continuously hang that sword over the country (Aegean, Epirus, Macedonia, Thrace... i.e. 75% of Greece's territory is openly demanded by the 3 rogue countries that border it with the only serious neighbour being only Bulgaria, a country equally attacked by the Anglosaxon group that favours the likes of Turks in the region). When Turkey, 15 years after owning double the debt of Greece, feels so great as to propose to ... close the Bosporus and make it a Suez canal with the full back up of US (and of course Britain)...a piece of info that all of you missed by the way..., you understand that it does so because it is very near actually taking Greece's half sovereingty over the Aegean with Greece and foremost EU being totally weak and incapable of protecting their most basic interests.

    And you sit and talk about economies? Pathetic.

  • Comment number 89.

    #88 Nik

    Can you tell us a little bit about Greek oil? Isn't this the source of the border disputes?

  • Comment number 90.

    Can someone please tell me the names of the people/names of the companies to whom/to which all this debt is owed, by all of these countries? I will then offer to chair a meeting for all of them to say, "Look, we're all in debt, why don't we just draw a line under it and then all start again?". I'll also put on the Agenda of the meeting a proposal that no bonuses are to be paid to any bankers for ever more!

  • Comment number 91.

    89. At 13:01pm 12th May 2011, Thames Ditton wrote:
    """#88 Nik
    Can you tell us a little bit about Greek oil? Isn't this the source of the border disputes?"""

    Fact 1: Oil there is a lot. But that is not only in the Aegean but also in the Ionian sea.
    Fact 2: There is no "border dispute". Borders are long ago defined by international treaties down the last milimeter. There is only a constant Turkish aggression against Greece, a constant rhetoric of pressuring Greece to cede sovereignty and to accept a change of borders under constant threat of war, there are occasional military clases between the countries and of course the constant flights of armed Turkish warplanes over Greek (i.e. EU for G shake...) airspace ending up in several rockets firing and several pilots getting killed (it is mostly the Turkish pilots, who despite the constant US aid and training and the better material they receive they still lag several levels in comparison to Greek pilots, who are acknowledged as one of the best in the world).
    Fact 3: The Turkish aggression has nothing to do with the oil. Turks have their oil too in the Turkish-Iraqi borders, yet they do not dare drill it. Why then?

    Fact 4: The Turkish aggressiveness in the Aegean has everything to do with Turkey's role in the region as the main aggressor that keeps down the whole region which afterall was the historic "raison d'être" of the Ottoman Empire, the pure creation of the Venetian commercial empire (created by the Byzantine plutocracy that got internationalised in the late 10th century fleeing the raising taxation internally in the Empire). That role of the Ottoman Empire was supported then by the British in the rise of the great game (i.e. the fight between Britain and Russia) and Britain had rushed to save Ottoman from total destruction since hte 18th century : without British/French/Austrian intervention, the Ottoman Empire would had ceazed to exist since mid-18th century and today it would be a relic of the past history, seen as a momentary raid, a bad break, and remembered as much as the British, Irish and Icelanders remember the Barbary pirates (yes, Barbary pirates raided up to Iceland...). In the wake of the 20th century and the total inability of Ottoman Empire to do anything at all, British rushed in along with French and Italians and created modern Turkey whose role of course was precisely to continue this huge wall between east and west and north and south (doing this of course first of all included the total genocide of the christians of Minor Asia, a genocide sponsored by British, French and Italians and celebrated particularly by British and Italians back then).

    Wow! Sounds too historic and too vague? Well it is much much simpler than that. Think of Russia's exit to the Mediterranean sea. Turkey pushed by US/Britain simply acts as the doorman.

 

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.