Greece...

mystic_trev

antrobus wrote: »

I'm guessing that Obama will give Lagarde a call and express his sympathy for having to deal with Greece on a regular basis.

I'm still awaiting compensation for the bottle of Retsina I was forced to drink in Poros circa 1979.

Generali

For the uninitiated, Target 2 is the inter-country payment system for the Euro.

Ordinarily you don't need a system like T2 (which incidentally nobody calls it). If you want to pay money from England to Scotland you use the BoE to take and pay the money. If you want to pay EUR100 from your bank account Portugal to your mum in Luxembourg then the Bco de Portugal will pay money into T2 and the Bqe Central du Luxembourg will take the money back out again.

If you want to pay money from England to Nova Scotia you swap your squids into Loonies (the Canadian Dollar is also known as the Looney). The bank you buy Loonies from pays Loonies to the Bank of Canada and the BoE pays your Squids to that bank. There is no residual liability or asset as the FX transaction has been completed (settled in the terminology).

In the T2 system, Portugal will have a EUR100 deficit and Luxembourg a EUR100 credit.

When the T2 system was first set up nobody thought this would be a problem. Your mum in Luxembourg would use the EUR100 to buy a nice bottle of Port or send some money to her Grandson in Lisbon. The problem is that because of the vast imbalances that the Germans are so proud of building up with the rest of the world, there is a massive debt in the T2 system from not-Germany to Germany. This totals, I believe, a bit short of EUR400bn.

A Grexit, which would presumably accompany a default, might lead to a sticky situation regarding the solvency of the T2 system.

Now AIUI, there is no mechanism for settling T2 debts. If Greece walks away, there is no recovery system in place. The Bank of Greece owes a bunch of money but there is no way for them to repay it even if they want to do so. If the ECB insists the money is repaid then my guess is that the Greek Government will simply tell them that they will repay under the terms in the treaty agreement. That agreement simply doesn't exist.

The solution? Beyond my pay scale I'm afraid.

purch

When monetary union was initiated, it was set up as if fiscal union existed as well, or at least was inevitable.

15+ years on, and it is now a mess.

Generali

purch wrote: »

When monetary union was initiated, it was set up as if fiscal union existed as well, or at least was inevitable.

15+ years on, and it is now a mess.

And as if there was a single Central Bank rather than a load of them.

Of course a Central Bank can 'print' money to make good on any debts to it if needs be. Apart from Buba (German Central Bank), AIUI at least. Buba can't print because the German Constitution won't let him. I think.

michaels

Generali wrote: »

For the uninitiated, Target 2 is the inter-country payment system for the Euro.

Ordinarily you don't need a system like T2 (which incidentally nobody calls it). If you want to pay money from England to Scotland you use the BoE to take and pay the money. If you want to pay EUR100 from your bank account Portugal to your mum in Luxembourg then the Bco de Portugal will pay money into T2 and the Bqe Central du Luxembourg will take the money back out again.

If you want to pay money from England to Nova Scotia you swap your squids into Loonies (the Canadian Dollar is also known as the Looney). The bank you buy Loonies from pays Loonies to the Bank of Canada and the BoE pays your Squids to that bank. There is no residual liability or asset as the FX transaction has been completed (settled in the terminology).

In the T2 system, Portugal will have a EUR100 deficit and Luxembourg a EUR100 credit.

When the T2 system was first set up nobody thought this would be a problem. Your mum in Luxembourg would use the EUR100 to buy a nice bottle of Port or send some money to her Grandson in Lisbon. The problem is that because of the vast imbalances that the Germans are so proud of building up with the rest of the world, there is a massive debt in the T2 system from not-Germany to Germany. This totals, I believe, a bit short of EUR400bn.

A Grexit, which would presumably accompany a default, might lead to a sticky situation regarding the solvency of the T2 system.

Now AIUI, there is no mechanism for settling T2 debts. If Greece walks away, there is no recovery system in place. The Bank of Greece owes a bunch of money but there is no way for them to repay it even if they want to do so. If the ECB insists the money is repaid then my guess is that the Greek Government will simply tell them that they will repay under the terms in the treaty agreement. That agreement simply doesn't exist.

The solution? Beyond my pay scale I'm afraid.

As well as the imbalances does this not reflect the Greeks doing the sensible thing and withdrawing all their cash from Greek banks and depositing it in other Euro country banks (in case Greece quits the Euro and redenominates all Geek Euro bank balances into new Drachma)?

(In fact if Greece has enough Euros salted away, defaulting could be very profitable for them....)

wymondham

Just came about this thread again, haven't they sorted Greece yet?? If not when do you think an actual solution will be found?

Generali

wymondham wrote: »

Just came about this thread again, haven't they sorted Greece yet?? If not when do you think an actual solution will be found?

The problem is that nobody seems to want to face the fact that the only real solution is a genuine second Greek default. The first went nothing like far enough as it was only really designed to give Deutsche Bank and BNP Paribas time to sell the Greek bonds on their books.

Greece's debts need to be brought down to a manageable level.

HAMISH_MCTAVISH

Generali wrote: »

Greece's debts need to be brought down to a manageable level.

And that might have happened had they not elected Syriza.

If they had played the game, suffered a bit more, worked at the problem from the inside, spent time getting the Academic, Political and Economic communities onside then eventually the great European political art of compromise would have kicked in and concessions would have been made.

But not now....

You don't threaten to blow up the global economic system and win.

Their hand is not strong enough.

mystic_trev

Running out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras ordered local governments to move their funds to the central bank.

With negotiations over bailout aid deadlocked, Tsipras needs the cash for salaries, pensions and a repayment to the International Monetary Fund. Greek bonds declined after the move, pushing three-year yields to the highest since the nation’s debt restructuring in 2012.

The decree to confiscate reserves now held in commercial banks and transfer them to the central bank could raise about 2 billion euros ($2.15 billion), according to two people familiar with the decision. It also shows how time is running out for Tsipras, a point made by European officials who addressed the matter at IMF meetings in Washington in recent days.

http://www.bloomberg.com/news/articles/2015-04-20/greece-moves-to-seize-local-government-cash-as-imf-payment-looms

Thrugelmir

wymondham wrote: »

Just came about this thread again, haven't they sorted Greece yet?? If not when do you think an actual solution will be found?

The problem has never been resolved. At some point debt has to be written off. As it will never be repaid. The price Greece has to pay is to reform it's culture.