'The Janet & John Eurozone sovereign debt crisis explanation' blog discussion

Former_MSE_Helen

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "The Janet & John Eurozone sovereign debt crisis explanation" Blog.

Please click 'post reply' to discuss below.

Reaper

Not sure about this bit:

"The Greek fella at the end has been spending a lot more in recent years than he can generate, and now he’s majorly in debt and close to going under – and a few of his neighbours like Ms Portugal aren’t that much better.
"The problem for the others in the pact, is they’ve promised to help Mr Greece and if they don’t their credit rating is linked to Mr Greece and if they don’t help it’ll hurt them too.

I would say:

If Mr Greece goes bankrupt then the lenders would worry about the others like Ms Portugal and Mr Spain, and they have borrowed MUCH more. They might stop lending any more money to them and if that happened and they went bankrupt too then the lenders would lose so much the whole street could get repossesed.

Sceptic001

Martin, the bit that should be in bold print is your footnote:

(and do note, in real personal finance consolidation loans are often NOT the solution)

Greece has been sold a classic debt consolidation plan when what it actually needs to do is declare itself bankrupt, allow its currency to devalue, and start to rebuild its economy, as Argentina did in 2002.

Unfortunately Greece cannot do any of this if it remains locked in the eurozone.

jamesd

Imagine the world is a street. At one end are a group of neighbours who call themselves ‘The Euro Club’ who all have a pact that causes all lenders to give them lower interest rates.

"The Greek fella at the end has been spending a lot more in recent years than he can generate, and now he’s majorly in debt and close to going under – aren’t that much better.

"The problem for the others in the pact, is that the increased risk of some not being able to pay back is causing lenders to raise rates for all of them, even the ones who have plenty of money. That's causing more of them to have trouble paying the higher interest rates, like like Ms Portugal.

"Yet even for those up the street who aren’t in the pact. The truth is everyone’s lent money to Mr Greece and his chums, either personally, or their banks have and if he can’t repay then that could really hurt them.

"Not only that but with so few people in the street, they all rely on each other to spend on their businesses. So when someone is skint, or worse you worry that their cash is worthless, it has a massive knock on effect for everyone and could see lots of them really struggling to make ends meet."

"Now Mr Greece has been given a consolidation loan by his buddies and banks. They’ve changed his debt into one low monthly convenient payment at a much lower rate spread over a longer period in the hope he may be able to get his act together and repay that – as if he went bankrupt they’d never get owt back and might not be able to afford their own repayments either after their rates go up."

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It's not so much a promise to help that's causing others to join in but the threat of contagion in the form of higher rates for all. Even those who'd let Greece go under would suffer from the higher rates.

jamesd

Sceptic001 wrote: »

Greece has been sold a classic debt consolidation plan

Halving the interest rate is rather a better deal than the typical consolidation of secured debt borrower would get.

It's cut the payments and shifted the final due date so far into the future that it'll be tough for short term market worries that would raise the price of new borrowing to hurt.

daaave

Mrs Iceland meanwhile, called everyone's bluff by admitting she hadn't got a hope in hell of paying back the debt.

Messrs Holland & England tried to bully Mrs Iceland into agreeing that her children and (unborn) children's children would pay off the debt.

She thought this was outragous - particularly as it was Mrs Icelands now exhusband (Herr Kaupthing and his charming mistress, Frau Icesave) who racked up the debt in her name.

So Mrs Iceland went bankrupt, stopped borrowing money and rearranged her finances to ensure money coming in exceeded money going out.

And now, three years on, Mrs Iceland is considered more creditworthy than Messrs Greece, Portugal and Ireland!

http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html