I have thought more about what I wrote in The Humiliation of Greece and have come to the conclusion that I was, in part, wrong. So I would like to offer a sincere an unreserved apology to all those who read it
I would also like to offer an explanation of where I went wrong and finally an amendment to the argument.
The bulk of the article and its main argument, I think, still stand. I think the argument about the Bond swap is fine. But where I went wrong was in regards of the proposed new law. In a nut shell my mistake was that I assumed the proposed law giving up all rights to assets and immunity from prosecution, was a law which would be applied generally. I assumed the proposed law would apply to any default on any debts to any sovereign creditors. I think this is not the case.
I would like to say that one reader ballymichael did try to point this out to me but I was very slow to realize what he was saying. I picked a bad time to be obtuse and I would like to say both thank you and sorry to him in particular.
If I now understand ballymichael’s point it is that this law would apply to loans made by the Troika but not to other loans made by other nations or lenders. Thus were Greece to default on bonds it had sold to China let’s say, then Greece would be able to default as would any other nation.
The knock on effect of this is that the final part of my article – which I did say was speculative – is wrong. Even if the private debts were counted as Sovereign as I suggested they could be, this would not trigger the proposed law. Thus this is not a way of recapitalizing private Greek banks and saving them from their debts. That will still have to be done by the means employed so far.
Embarrassed as I am that my specualtion was wrong I am also glad. The betrayal is not as foul as I had specualted it might be.
However, it is still pretty bad.
The new law would pertain only to those loans made by the Troika. The Troika being the European Union, through its various agencies including bail-out funds such as the EFSF and the ESM, and then the ECB and the IMF. The problem for Greece is that the Troika is not really just one creditor among many. It is now Greece’s most powerful and main creditor. What this means is that because the central bulk of its debts cannot now be defaulted without the new law laying Greece open to being gutted like a fish, this essentially prevents Greece for defaulting on any of its debt no matter who the creditor was. Greece could default on debts owed to lets say the BoE or China but such a default would not clear enough of the nation’s debts ot make it worth while.
The more loans Greece ‘accepts’ from any Troika bail-outs the more this will be the case. The ability to strip Greece in the event of any default confered by the proposed law makes lending to greece via the bail out funds such as the EFSF and ESM the ‘safest’ way to lend by far. If Germany wants to lend to Greece it can now chose to do so via the bail out funds rather that as nation to nation. Other lending will still happen because it is clear the new law pins Greece down and makes any default almost unworkable.
Thus although my original argument was, as I have said, wrong, in many ways the new law still has many of the same wider effects as I had originally thought, just by a more round about way.
As for the speculation about Greece’s private banks and their private debts – as I said my speculation was wrong. Those banks and their debts will continue to be protected by the method used so far – Troika funded bail outs.
I hope you will accept my apologies. It is a shitty way to end the year. But at least it was no one’s fault but mine.
I do realize that the currency of any blog is how trustworthy people feel it is. I hope this blunder has not shaken your confidence irrevocably.
There is always a danger – which I am very aware of – of getting out of one’s depth when trying to write about issues which depend upon technical aspects of finance and law. The worry of getting out of my depth is never far from my mind. But the alternative is to go back to accepting the platitudes and bland assurances of those ‘smartest men in the room’, who have always claimed to know better and who would like nothing better than for us to stop trying to understand and to stop asking questions.
I cannot bring myself to do that even when I find I have embarrassed myself so publically.
I hope 2013 brings you and yours rude good health and joy.