I think I understand the basics of the European debt crisis, but there’s one thing that eludes me. Greece is trying to get its private creditors to accept write-downs on Greece’s debts. The figures being discussed are pretty steep; last I heard, it’s going to be a 70% haircut. And they’re not going to get the remaining 30% as any sort of real money, but as new bonds that won’t mature for another 20 years or something.
Given that, why would the private creditors do anything except say, “Fuck you,” and walk away? The bond swap looks like a default in everything but name, and whose to say that Greece won’t pull the same stunt when it’s time to honor the new bonds?
Greece is, literally, incapable of paying back those debts in full, which means a default of some sort on those debts is guaranteed at this point. That’s what gives Greece and the Eurozone leverage over the private creditors: if all of them say “fuck you” and walk away, Greece will end up declaring a disorderly bankruptcy and the creditors will be taking a 100% haircut on their loans. Furthermore in that scenario Greece would be almost certain to leave the Eurozone and re-adopt their own national currency, so if the more senior creditors wished to sue them they’d be wading into an incredibly complex legal battle about whether their debts can be redenominated from drachmas into the value of Euros, what that value would be, and a host of other intractable issues. It would drag on for years and it would be a nightmare.
Another point to note is that a huge proportion of Greece’s private creditors are German and French banks. The Greek bailout is essentially a bailout of those banks: Germany lends bailout money to Greece, but that money is kept in a separate fund and can only be used to pay back debts and interest on debts, ie. to pay back those banks and save them from taking losses. That means Germany and France have additional leverage over a lot of the private creditors, in the ways that governments do over banks located in their states.
The same logic goes for the question, “why doesn’t Greece just say ‘fuck you’ and walk away from its debts?”. The result of a disorderly, total bankruptcy would be devastating for everyone involved.
Because “moral high ground” doesn’t pay the bills. If they stick to their guns, keep demanding the full amount, and force Greece into default, they get nothing but a sense of satisfaction at having been “in the right”.
Yea, aside from the obvious point that 30% of a lot of money is still a lot of money, the same banks also hold bonds from Portugal and Italy and Ireland. Since a messy Greek default is generally regarded as making other problem countries more likely to default, which in turn may make even more European countries at risk of default, there’s a lot more at steak here for the banks then just the money they lent Greece.
If your reply to Greece is “100% or nothing” I’m guessing the Greek answer will be…
It’s not like a regular bankruptcy, where if you don’t agree the court takes your house, car, life savings, and possibly your first-born and tosses you into debtors’ prison too. (not that they do in private bankruptcy either…)
If Greece had a unilateral default, then what recourse does a private lender have? You can’t even try to seize the local Greek embassy, because technically it’s foreign soil. You can’t seize the Greek airlines planes unless the airline is totally owned by Greece, etc. They own the baseball, and the bat, and the playing field - so you play ball their way. When Greece is ready to try borrowing or getting credit again, will the people who are trying to sell them things (oil, ec.) care about your debt? Aslong as they avoid passing money in a situation where you could seize it when it belongs to greece (local bank?) there’s no way to enforce the debt. Negotiation is always the best course of action.
Interesting. Assuming nothing was lost in transaltion, I’ve learned my one new thing for the day.
Still, if the possessions of diplomats are immune due to extraterritorialty conferred dimplomatic immunity, the same would be said of diplomatic sites. Besides, any place where the courts and government let you seize the Greek embassy, I’m pretty sure the Greeks would boot out your ambassador and seize your embassy in retaliation.
The trouble with international relations is you don’t want to get into a tit-for-tat battle, because both sides have a lot to lose, even if only one sie is broke.
Can we repossess the baseball and the bat at least?
ETA: obviously it’s moot - even if you could repossess let’s say a couple of millions worth of real estate and perhaps a plane here or there, that would be completely meaningless as related to the size of Greece’s debt. It’s like somebody owes you 10,000 dollars and you’re going through the penny tray in their car.
Forgive me as I am not following this that closely, but are the banks voting to take the deal or reject it as a bloc? Like does Greece say, how bout a 70% haircut, then see if enough of the creditors agree to it? Or is there so entity representing all the creditors that can speak for all of them?
It’s my understanding that it is mostly the EU leaders that are working on the banks on behalf of Greece and the eurozone more generally, using the power of the European Central Bank to force the individual banks into accepting this deal.
There is another factor, I believe, in that some of the debt is “insured” the way AIG insured the mortgage debt. If it goes to 0 that kicks in, and it is unlikely to be fully covered. An agreement is not a default, and it keeps things more stable.
As for morality, the banks should have known what they are getting into. You take the risk, sometimes you take the consequences.
A lot of this is kind of like the Coyote going off a cliff in a Roadrunner cartoon. Everyone involved is being very, very careful to not look down and notice they are in mid-air, high above the canyon floor.