This year alone Greece has to sell €54B AND refinance another €20B.
Yesterday the Greek government offered just €5B in seven year bonds – to test the water. The bonds offered 6% which is twice the rate a bond buyer would get if she bought German bonds. So as long as you think euro land will not allow Greece to default then this is a sweet return. And yet for the €5B on sale they only got offers for €6-7B. Hardly seems a vote of confidence.
More importantly this tells me the rate the Greeks will have to offer will not come down either by much or soon. Which is a large problem because Greece’s recovery plan is based upon paying 4.5% interest. Anything above that will require MORE cuts which will in turn further shrink their economy so that they earn less, pay fewer taxes (if that’s possible in Greece) and with fewer taxes the government will have to borrow more.
The difference between paying 4.5% and 6% is over a billion.
Then consider how much growth Greece might get from the borrowed money. For the borrowing to help rather than sink you it has to return MORE than its costing. So money borrowed at 4.5% has got to earn more than 4.5%. Money borrowed at 6% has to earn more than 6%. You can see why Greece keeps pleading for the euro zone to help them borrow at lower cost. So far they haven’t.
Unless this changes I think this ‘plan’ is not really one for recovery but for stalling. Exactly the Argentina plan. Germany is saying Greece has to implement and show it has implemented its draconian cuts to social spending. Will they?
At the other end of Europe things aren’t looking too peachy either.
In Ireland too, the financial situation is getting worse not better. Ireland is about to bail out its two largest banks Allied Irish and Bank of Ireland AGAIN. This time the bailout is LARGER than the first time. First time was €11B. This 11B didn’t fix anything. It bought some time. Now time is up. During that time another €12-15B rotted away from the value of the loans and assets of these two banks. Actually much more than that has gone. €12-15B is the part that has reached critical, can’t be hidden a moment longer and has to be paid NOW.
The Irish government is also preparing to take a lot more bad loans into its bad bank – up to €81B!. That should do wonders for their credit rating and borrowing costs. And remember liabilities on a bad bank are for as long as the terms of the bad loans. The ugly question for both the government and the banks is, what value and therefore what loss the banks will be forced to take on them. A realistic value ( very low) and the banks take a massive hit, and will need even more bail out to save them. A high, liars value and the banks take smaller losses and get a bigger the gulp of life giving cash but the government has to pay the real loss and lie for them to boot.
Golem,
you should be aware that one of the main culprits in this whole debacle, Anglo Irish Bank, a bank of no strategic importance to Ireland's economy, a niche bank for property speculators and developers with close ties to Ireland's political establishment (i.e the Fianna Fail party,an abscurantist, ultra-conservative, neo-Thatcherite,neo-Liberal entity, a Mafia with poor taste in suits that dominates Ireland's political and cultural landscape) will have received €13 billion from the government, all borrowed at taxpayers expense before this day has ended.
Philip,
Are you saying €13B in addition to the declared money or totaling up their part of it?
Of course having close political ties is always a winner. That or laundering drug money. I've often wondered which Irish bank was the drug laundering bank.
Philip,
one other question have you ever heard of the AGIP affair? Not important. Just wondered.
Apparently Anglo Irish Bank's total bailout will be €22B, so my previous estimate of €13B based on mainstream media reports was way off the mark.These deals with the banks were done behind closed doors with the current minister for finance Brian Lenihan (3rd generation Fianna Fail aristocracy)who is generally feted by the press as the saviour of Ireland's economy.The true scale of the losses at Anglo and the other Irish Banks have never been disclosed.
No I have not heard of the AGIP affair.What is it?
It's a murky money laundering affair I once researched. One of its limbs eventually led, so I was told, to an ex Tory minister and financing the UK's dirty war in NI. I often wondered where the funds were laundered. I always felt it would have to be a bank that was comfortable in UK, NI and Eire. Always looking for stay hints to advance that story.
I continue to research Money Laundering in general since it is a key to much that is murky and profitable in Bank world.