It appeared that Greece had secured a deal to pay an interest rate of 3.1%, rising to 4.75%, on new 30-year bonds created from its outstanding €360bn (£300bn) debt burden. With compound interest at these levels, the Greek government is paying over the odds. Effectively the debt doubles every 23 years at 3.1% or very 15 years at 4.75%. So for a thirty year bond, the Greeks will be paying back over double the amount they borrowed. However, it will be interesting to see how much inflation or loss of purchasing power the Euro loses over this period. An outline deal, hurriedly endorsed by Brussels, came after a frantic three days of negotiations that at one time appeared to be heading for deadlock. It appeared that Greece had secured a deal to pay an interest rate of 3.1%, rising to 4.75%, on new 30-year bonds created from its outstanding €360bn (£300bn) debt burden. The effect would be for creditors to accept write-downs of up to 70% on many of their loans. Sources close to the Greek government said it was still possible that major lenders could walk away if there was a failure to get agreement on some of the fine detail, but Athens was confident that further talks over the weekend would bring a comprehensive deal. Before the news, trading on world stock markets was subdued, indicating the importance attached to a Greek deal as investors waited for the outcome before committing funds. The FTSE 100 finished the day down 12 points at 5728.55, closing before speculation surfaced that a Greek deal was imminent. The French CAC and the German Dax were also down 7 and 11 points respectively. The Dow Jones followed a more positive path closing up 96.5 points at 12720.48. Greece has become the focus of tension in the euro-zone for the third time in as many years after first announcing it was in trouble in the spring of 2010.
Access Investments-Building Awareness - European Union-ROMANIA
Sunday, January 22, 2012
It appeared that Greece had secured a deal to pay an interest rate of 3.1%, rising to 4.75%, on new 30-year bonds created from its outstanding €360bn (£300bn) debt burden. With compound interest at these levels, the Greek government is paying over the odds. Effectively the debt doubles every 23 years at 3.1% or very 15 years at 4.75%. So for a thirty year bond, the Greeks will be paying back over double the amount they borrowed. However, it will be interesting to see how much inflation or loss of purchasing power the Euro loses over this period. An outline deal, hurriedly endorsed by Brussels, came after a frantic three days of negotiations that at one time appeared to be heading for deadlock. It appeared that Greece had secured a deal to pay an interest rate of 3.1%, rising to 4.75%, on new 30-year bonds created from its outstanding €360bn (£300bn) debt burden. The effect would be for creditors to accept write-downs of up to 70% on many of their loans. Sources close to the Greek government said it was still possible that major lenders could walk away if there was a failure to get agreement on some of the fine detail, but Athens was confident that further talks over the weekend would bring a comprehensive deal. Before the news, trading on world stock markets was subdued, indicating the importance attached to a Greek deal as investors waited for the outcome before committing funds. The FTSE 100 finished the day down 12 points at 5728.55, closing before speculation surfaced that a Greek deal was imminent. The French CAC and the German Dax were also down 7 and 11 points respectively. The Dow Jones followed a more positive path closing up 96.5 points at 12720.48. Greece has become the focus of tension in the euro-zone for the third time in as many years after first announcing it was in trouble in the spring of 2010.
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3 comments:
the hedge funds are playing hard to get as they have bets playing both ends of against the middle and Insurance with AIG (US govt bailed them w 100s of billions when Leahmans crashed) to protect for either bet that fails. So are on a Win Win bet worth billions.....
So of course this has failed, theres load of tax free money to be made from the pain of the local people. And its all legal in the anti social form of captialsim we have..... Casino banking.
I wonder if any of the money laid on these bets has come from QE, the Fed printing machines )the public purse) indirectly of course.... Or is this all investor money in Greek Bonds and the Hedge Funds bets..?
One commentator wrote this weekend that Greece now faces a choice of disasters.
Disaster A is to try to stay in the Euro, imposing more and more harsh austerity, cutting wages and pensions, closing museums, shrinking the GDP, running down the health system, watching more and more citizens emigrate.
Disaster B is to bite the bullet and leave the Euro, convert to the New Drachma, suspend Banking for a week, and face years of litigation over contracts.
Then he added that if they choose A, they will get B in due course.
Some people are talking as if a Greek haircut actually solves anything. In fact, in an insolvency, there is a deficiency. There is a lack of value in some asset. Accounting operations cannot remove that deficiency, merely move it around.
If Greece pays its debts, its taxpayers pay. If Greece defaults or imposes a haircut, and lenders aren't insured, the lenders pay and take the loss, and if they need a bailout, their taxpayers pay. If the lenders are insured, then CDS payments are triggered and the sellers of CDS insurance pay and take the loss, and if they need a bailout, their taxpayers pay.
I think that this month we are going to find out who was foolish enough to hold Greek debt with no insurance, and who was foolish enough to pull an AIG and sell CDS insurance they could not afford to pay out.
The fact of the matter, though, is that there is a Greece sized hole in Euro-zone financial institutions, and all we don't know is exactly where it is.
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