Greece, having missed the payment due yesterday on its IMF loan, is effectively in default:
ATHENS — Greece missed a crucial debt payment to the International Monetary Fund, the fund said early Wednesday, deepening a crisis that has haunted world leaders and financial markets over the past week.
The development came as Greece’s European creditors each rejected an 11th-hour attempt by Athens to extend the country’s international bailout program.
Greece is not technically in default, but missing the payment of 1.5 billion euros, or about $1.7 billion, is yet another warning that the country will probably be unable to meet its other obligations in coming weeks, to its bond holders and to the European Central Bank. That might make the bank, one of the country’s chief creditors, less willing to continue emergency loans that have been propping up Greek banks for the past several months.
The fish is hooked but it’s thrashing around on the gaff. The Greek prime minister is trying to re-open negotiations to give a lot and get less than he was demanding. Angela Merkel is willing to let him twist in the wind, insisting that any re-opening of negotiations wait until Greece’s referendum this weekend.
What’s not being said is that as long as the Germans hold to their present policies there’s nothing the Greeks can do, barring an exit from the euro, that will get them out of the hole they’ve dug themselves. With shovels made in Germany, no doubt.
I’m always fascinated by notions that the lenders are the bad guys, as if they hold guns to heads and force borrowing. The lenders are only bad guys to the extent they want bailout treatment for their poor credit decisions. And call me crazy, but I don’t think borrowers funnel the proceeds to their local churches serving the poor. They consume for their own benefit. Completing this malformation are the politicians, who seize on the opportunity to ply both sides for their own political benefit.
Until borrowers and lenders are allowed to get their asses burned this is all going to continue. It’s unfortunate.
The lenders are only bad guys to the extent they want bailout treatment for their poor credit decisions.
Which has happened to the tune of trillions in recent years, so yeah, they’re bad guys.
Until borrowers and lenders are allowed to get their asses burned this is all going to continue.
Well, so far Iceland has told the lenders to go to Hell. And…. I think maybe Spain threw a banker or two in jail, but that’s pretty much it on the lender side. So far they’ve been able to get all the benefits of risk-taking without actually, you know, taking any risks. It’s almost like it’s a rigged game….
In the particular case of Greece, yes, the lenders are the bad guys. To understand why imagine there are just two countries involved and both use the same currency. Country A produces everything more cheaply than Country B and Country A refuses to buy even things in which Country B has a comparative advantage for non-economic reasons.
How is Country B to get money? It’s not a monetary sovereign. The only way is through borrowing. More austerity won’t help because it only reduces economic activity within
GreeceCountry B. The solution to this problem is forGermanyCountry A and Country B to be on different currencies. Or for Country A to take a big haircut.Illinois’s and Chicago’s situations are different. Here I’m completely in agreement that the borrowers are the bad guys. Greece has a very bad case of post-colonial syndrome. It’s a low trust environment that is terribly undercapitalized.
And that is exactly what has happened with respect to the German, Dutch, and Luxembourger banks that loaned Greece the most to begin with. Now it’s the IMF (which means us among others) who are picking up the tab.
Actually a good deal of the US tab is being picked up by … more debt! If this works in perpetuity, then I think central bankers will have finally invented a perpetual motion machine. For get the Nobel for Economics, give those guys a Nobel in Physics!
Thanks for the tutorial. 😉 C’mon guys. The basics are obvious, but you really should be focusing on the politicians and their policy decisions. The banks are just Pavlovian players.