I’m still trying to figure out why the Euros don’t just flush Greece down the toilet?
Maybe its the “own the bank” issue?
>I’m still trying to figure out why the Euros don’t just >flush Greece down the toilet? Maybe its the “own the bank” >issue?
The problem is that many German and French banks are up to their eyeballs in Greek debt (and Italian, and Portugese, and Spanish, etc). They are afraid of a couple things:
A) Having their banks take a huge hit if(when) the Greek bonds go into default.
B) A supposed ‘contagion’ of the problem spreading to the other PIIGS (Portugal, Ireland, Italy, Greece, Spain).
It actually is starting to look like the Irish have managed to dig themselves out, but the rest of the PIIGS are still in deep doo doo.
There is another rather sneakier reason that the Germans have put up with this nonsense- the PIIGS are keeping the Euro down as a currency, and this helps German exports. However this gimmick is likely to be pretty inconsequential if all the banks go to hell.
Really the only rational response is to simply chuck the Greeks out of the EU and let them sink or swim. The former is the probably outcome.
It is call derivatives and other leveraged financial tools invented by US Wall Street that is screwing up the situation. Greece’s GDP is a small fraction of the EU. The entire EU can absorb Greece bonds if Greece defaults. Problem is the derivatives are leveraged at ratios of 40 or more to 1. Thus for every Greek dollar, the derivative holder can lose 40+. Furthermore in the past derivatives were never traded in an open market with full transparency. So up to this day no one knows how big this market is. Estimates range from 55 trillion to 1.5 quadrillion. No one knows who owns how many. Many EU investment banks and firms play with derivatives. That is why ECB, IMF, US banks, US Fed Reserve, US Treasury, every EU finance ministry, major banks and etc cannot afford Greek default.
Because it is the Germans, Fwench, and English who hold most of the Greek debt.