I keep reading about all of these nations having too much debt. Greece, Italy, Spain, Ireland, Belgium etc. I know the US has borrowed a lot of money from China, but what about all these other nations. Who owns all of that debt?
Other Europeans (and European banks), which is why the problem is seen as a Europe wide problem. I’ve read the US banks have a high exposure as well.
If I may ask a related question:
I keep hearing about the EU trying to put together a bailout fund. Where is the money supposed to come from? The same guys who they owe money to now? (“Hey, can I borrow $20 to pay back the twenty I borrowed last week?”) Or are they just planning to fire up the printing presses and hope the Euro doesn’t devalue too much?
In an extremely, overly simplified sense, yes, the bailout is coming from the same guys who are currently owed money. In essence, the big banks are saying “We’ll lend you enough extra money to keep you going now, but only if you make certain changes so that your fiscal situation improves.” The borrowing isn’t paying off any old debts, it’s just continuing to finance new debt because these countries are still running deficits right now.
It’s a little like the issue with the US debt ceiling. If the US was prevented from borrowing more money (in this case, due to internal rules rather than external banks), then the government would have to choose what expenses to stop paying. No matter what you stop paying, you screw up some part of the economy.
The same countries anyways. Basically its a very round-about way for Germany, France et al. to bail out their banks. Rather then just cut the banks a check as the US did during the financial crisis, they’re giving the check to the countries that owe the banks money so that those countries can give it back to the banks.
I don’t think thats right. The bailout fund is being funded by the EU gov’ts, not the banks.
A 50 to 60% reduction in the value of Greek debt (which totals 350bn Euros approx) is now being discussed after talks on July 21st where 21% cuts were agreed. Bondholders include banks and governments worldwide, and would actually not be a huge burden on anyone except hundreds of millions of taxpayers; ie it is affordable.
That’s the good news.
This would still leave Greece with debts of over 120% of GDP, without a lot of industry outside of tourism and olives to service that debt. This could lead to possible further defaults and more economic problems in the EU.
Another issue is the other PIIGS - particularly Italy, Spain and Portugal: If Greece is seen to be given an easy ride then they may start to think about doing the same (hell, they ARE thinking about that right now). So Greece has to be seen as being somewhere other countries in the EU don’t want to go. The center countries (mainly France and Germany) want to keep the EU politically unified so don’t want Greece and the other southern countries to drop out, but they’re also having lots of trouble amongst their own voters who don’t want to keep sending good money after bad.
What the most central countries to the EU want is allegedly closer unification, with the German Central Bank in charge of the finances of all EU countries. A United States of Europe where individual countries lose their sovereignty and government, which are replaced by the Eurocrats (see what I did there?) in Brussels. Obviously individual nations will appose this unless it’s viewed as inevitable and/or an alternative to financial ruin.
So to the OP the money is spread far and wide, but Greece is just the start.
It’s not just PIIGS (Portugal, Italy, Ireland, Grece, Spain) thinking about getting a free ride. It’s the private banks which will take a haircut on all that debt - and thinking “if theose counries are next, why the F^%$% would I buy a single extra bond from them if it ends up being worth 50 cents on the dollar(er, euro) in 5 years?” So to sell any bonds after tomorrow, Italy etc. will pay not the usual 3 to 5%, but 15 to 35%. You think the PIIGS have debt issues now? what if their choice is cut everyone’s salary and pension by 50% now or pay loan shark rates and go broke anyway in a year or two?
And to whom a lot of the aid has gone, and whose managers are often politicians (in the case of Cajas, the board of directors is the local government to which that Caja belongs), and who (this will sound familiar) increase their own salaries and bonuses yearly even in years in which they’ve gotten cash injections from those debt-loaded governments (for example, due to having lost a lot in a pyramid scheme) while hiring fresh-out-of-college people for under minimum wage and firing them as soon as they should start paying minimum wage…
No, this doesn’t raise my blood pressure, why do you ask? It’s congenitally low, I need to do something like eat at a Swiss Post employer’s restaurant for a month before it goes up 
So even the most badly mismanaged banks will be hesitant to take on debt now that Greece has demonstrated the simple fact - bonds from poorly run governments could lose 50% of their value overnight.
For the OP - I think it was The Economist that mentioned that China owns about 7% of the euro debt under scrutiny. The Europeans would love it if China would buy more bonds from the bail-out fund (backed by the more reliable Germany and France). China apparently woul prefer to buy bonds directly from various governments, thus gaining a greater closeness and more leverage with particular governments. They especially like buying physical assets, and so are apparently salivating at the idea that Greece (and maybe the other PIIGS) will have a fire sale unloading government assets like government corporations and some operations that should normally be private-sector enterprises.
Instead, some of the banks in France and Germany will be expected to help out by buying the bail(out)bonds.
I heard about that. And how they’re not even supposed to reach 120% until 2020. It sounds like Greece is going from being totally hopelessly fucked to being almost totally hopelessly fucked.
Frankly, I don’t see how this is worth a 300-point jump in the stock market.
Eh, I don’t think their total debt load is so much of an issue as their yearly deficit. If the debt load is going down, even if very slowly, then I think thats a much better situation then having a deficit thats growing without likelihood of being brought under control. Granted, the deficit is partly driven by having to service the debt, but I assume thats the point of the current plan to reduce the value of the debt, so that their debt payements don’t exceed current revenues.
The very simplified version is that Greece owes a lot of money to a lot of banks, including a lot of German and French ones. The EU bailout fund is mostly made up of contributions from the governments of countries like Germany and France. They bail out Greece, who use it to pay back the banks. To some extent the German and French governments are just bailing out their own banks again, and that’s also part of the reason why Greece is such a problem for them - Greece is bankrupt, but it owes money to German and French banks who would probably also go bankrupt if Greece refused to pay back any of its debts.
That’s only one aspect of the whole crisis though, and there’s dozens of aspects. The whole thing is a serious mess.
This prediction was incorrect. Italy’s bonds (10-year debt) were trading at a yield of around 6% today, which is a good indicator of the cost of borrowing. In fact, yields on various European governments’ sovereign debt were slightly lower today than yesterday.
The fact that bonds could lose 50% (or 100%) of their value overnight is something that markets are well-aware of, and have been since long before this crisis. Investors are and will continue to be willing to take on government debt if the price is right.