It looks like Europe has finally united and bailed out Greece — or have they? Darrell Delamaide’s column at MarketWatch yesterday puts the whole Greek bailout process into perspective.
To start with, the bailout is not for Greece, but for German, French and other foreign banks who willfully abandoned due diligence to buy more Greek debt than any financial analyst would have thought the country could sustain.
After months of nail-biting negotiations, Greece finally reaches agreement on a bailout to prevent a debt default next month.
The 130 billion euros ($171.9 billion) in aid agreed to by Europe’s finance ministers in their marathon session will go into a managed account to make sure it goes directly to Greece’s creditors when their bonds fall due. Read MarketWatch’s full coverage of the Greek deal.
The agreement was made possible when the Greek Parliament a week earlier approved a package of draconian austerity measures, which they, as well as the European finance ministers who insisted on it, know they will never be able to deliver.
Antonis Samaras, the leader of the center-right New Democracy party, said as much during the debate when he urged members of his party to go along with the austerity measures in order to get the bailout done — and then they could be renegotiated after Greek elections in April.
In the shambles that is Greek politics, Samaras’s party is leading in the polls, though it is not expected to win an outright majority.
Even as German Finance Minister Wolfgang Schäuble was leading the charge on Monday to wring more austerity out of the Greeks, one of Germany’s top economists branded the bailout “illusory” and said the type of deflation being exacted of Greece is unrealistic.
Asked in an interview on Monday with Spiegel Online whether this new bailout could save Greece, economist Hans-Werner Sinn answered, “No, and the politicians know it can’t.”
From the MarketWatch’s full coverage story linked above:
The euro initially popped higher after euro-zone finance ministers and international officials announced an agreement to provide Greece with 130 billion euros ($172 billion) through 2014. Greece will also launch a debt swap that will see private bondholders accept a 53% write-down on the value of their holdings of roughly €200 billion worth of Greek government debt.Z
Gee, that sounds familiar. Where have we seen a government screw private bondholders as part of a bailout package? Looks like Europe has taken a page from the Obama playbook.
The comments following Darrell Delamaide’s column are as interesting as the column itself.