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And so the Ponzi scheme that has come to
be known as the Greek money merry-go-round continues with German banks
agreeing to continue the financing of an economy that will fail despite the
fact that more money is being poured into it.
As part of the government’s fire sale we can
officially say that Greece is now for sale. Here’s a graphic courtesy
of CBC News that illustrates the extent of the privatization plan that the
government voted through.
It is important to look at this lunacy one more
time. Greece owes the rest of the world more than $500 billion US.
The Greek economy has contracted by 4.5% over
the past year, seen the national unemployment rate jump to 16% and was in
serious danger of defaulting on July’s debt obligations before George
Papandreou was able to reshuffle his cabinet, gain the vote of confidence
that his PASOK party so desperately needed and pass austerity measures that
will cost the average Greek family of 4 roughly $4,000 US dollars a year.
The real question that remains now is whether or not
the massive cuts and fire-sales announced by the government will actually curtail growth
rather than spur it. I argue the prior.
Then we have the ECB’s recent tone with
regards to interest rate hikes. Trichet has been
hawkish of late talking up even more rate increases and the market is pricing
one in for the next month. Here is a “zone” struggling with
massive debt and the leader of its central bank wants to burden them even
more with increased borrowing costs.
While the European Central Bank is the largest
individual creditor, with about €49 billion ($70 billion) owed to it,
Greek banks are the holders of approximately $100 billion (US dollars) of the
country's total debt and they would most probably collapse under the weight
of everyone trying to rush to get their money out in a default scenario. Next
in line are the Germans and their banks and then there is France with two of
its biggest banks also having large ownership positions in some over-exposed
Greek Banks.
Back to Greece, my view remains unchanged from when
their debt problem emerged last year. That
is that they have simply borrowed so much money that they will never be able
to pay it back and that at some point, a default on that debt will be
inevitable. What Greece, The European Central Bank and the
IMF were really doing is looking out for the banks. According to Barclay’s Capital, exposure to Greek debt is large and highly concentrated; “the top 10 names account for 50%
of holdings, the top 30 for 70% and the top 40 for close to 72%.”
The following are at risk:
- BNP
Paribas holds about €5 billion ($7 billion) on its balance sheet;
- Dexia,
a French-Belgium-Luxembourg operation, comes second with €3.5
billion ($5 billion),
- Italy’s
Generali and Germany’s Commerzbank with
€3 and €2.9 billion each respectively
- France’s Societe
Generale (€2.9 billion)
- Axa (also
French, €1.9 billion)
- Deutsche
Bank from Germany (€1.6 billion)
- and the
Royal Bank of Scotland (€1.1 billion)
This afternoon Germany’s biggest banks agreed
on a proposal to “roll over” Greek debt holdings. In essence what
that means is that they will be reinvesting money from maturing bonds into
new Greek bonds. According to the deal, German banks have agreed to roll over
at a minimum, the Greek bonds they’re holding that mature through 2014,
which amount to about 2 billion euros ($2.9 billion). So you see, Greece is getting money not to pay their creditors or
bond holders but in order to keep the banks alive because a roll-over of debt
simply means an extension of the payback terms of the loan.
The money Greece has taken from the IMF and ECB
since last year’s bailout did nothing to curtail their crisis. Is the
world so naive to think that this tranche will have any different outcome?
For now the money shell game continues at the
expense of the Greek people so that the banks can stay afloat.
Dan
Dontrose
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