An agreement has been reached at the EU. Hat Tip: BBC
At this moment I do not entirely understand it. But it seems:
- European banks holding Greek debt have agreed to take a loss of 50% on the debt
- The stockholders take the loss...
- It is not a Greek default
- It will permit Greece a still huge debt load of 120% of its GDP in 2020. Under current conditions, it would have grown to an astonishing 180%.
- IMF and the Euro zone will give (I think they mean loan) Greece an additional 100 billion euros
- The EU bailout fond is boosted from 440 billion euros to a cool 1,000,000,000,000 euros (one trillion)
- The banks will be obliged to accept new recapitalization demands of 106 billion euros
- This will require more bank packages, I believe. Guess who is paying...
The financial markets are reacting positively. I consider they think it makes little difference for the spendthrift Greeks, but are just happy to see the EU agree on something. Greece will continue to spend and will continue to need more aid. Not the least reasons being the world wide crisis and the partial destruction of the Greek economy.
The one trillion is a big number. But not that big a number if say Portugal, Spain and Italy start asking for (additional) help.
What would happen if we private citizens started to complain about our debt? Would we also get a 50% discount?
Nevertheless, it is an attempt to save the Euro zone. I wonder what the government in Portugal will now say. They have used the "it would be terrible for Portugal to default" - does that mean hell fire on Earth?, as one argument for the austerity measures. However, a 50% cut in debt looks rather enticing - does it not?
Update:
It seems the banks do not agree and are not part of the agreement. The EU would like it to be a voluntary agreement as to not make Greece seem to default.
The EU banks can be forced, but what about banks outside the EU? Or is all the debt inside the EU? I doubt it.
Update 2:
The 50% loss is equivalent to 20 billion euros. The banks are needing to find 126 all in all...
Update 3:
Academics do not understand much of the above either. Quite frankly because it is unclear and not negotiated yet. Another question: How is the 440 billion euros bail out fond to become 1 trillion euros? By magic?
Update 4:
The rating agencies are now jumping into the fray. Fitch now states that the bond haircut is a default. Of course it is, what else would you call it? The emperor IS naked. But sometimes it does take a child to see the obvious.
What would happen if we private citizens started to complain about our debt? Would we also get a 50% discount?
Nevertheless, it is an attempt to save the Euro zone. I wonder what the government in Portugal will now say. They have used the "it would be terrible for Portugal to default" - does that mean hell fire on Earth?, as one argument for the austerity measures. However, a 50% cut in debt looks rather enticing - does it not?
Update:
It seems the banks do not agree and are not part of the agreement. The EU would like it to be a voluntary agreement as to not make Greece seem to default.
The EU banks can be forced, but what about banks outside the EU? Or is all the debt inside the EU? I doubt it.
Update 2:
The 50% loss is equivalent to 20 billion euros. The banks are needing to find 126 all in all...
Update 3:
Academics do not understand much of the above either. Quite frankly because it is unclear and not negotiated yet. Another question: How is the 440 billion euros bail out fond to become 1 trillion euros? By magic?
Update 4:
The rating agencies are now jumping into the fray. Fitch now states that the bond haircut is a default. Of course it is, what else would you call it? The emperor IS naked. But sometimes it does take a child to see the obvious.
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