Sunday, 11 April 2010

We can has bailout part 2

Enjoy the music my friends

Full statement here

The damage to our Eurozone partners: a loan of EUR30bn, at 5%, and here's how it breaks down according to the deal:

To put this in perspective, I could get a 90% mortgage from HSBC at this interest rate tomorrow. A young professional with a house for security is apparently a safer bet than a sovereign with the tax bills of an entire nation from now to the end of statehood as we know it as security.

But then again, I'm not borrowing a mindIboggling amount of money against the promise of simply borrowing more to pay the bank back. (In fact, to reassure friends and family, I am not getting a mortgage at all!)

Now back to our story.

Who benefits from this bounty of nowhere-near-free cash?

Not the Greek state - this money will cement our commitment to painful austerity with a contractual arrangement, not to our friendly eurozone partners but to the decidedly unlovely IMF.

Of course, the Greek people may benefit from having to pay less interest on this debt. 2 to 3 per cent less to be precise, which could in years to come cut our interest burden by more than a third.

Our Eurozone partners may benefit from containing contagion - to the extent that it can be contained, and they are getting a pretty good return on their money, but amazingly, some pretty hard-up countries will have to dig deep to bail us out. Germany, of course, will pay some EUR8.4bn, but what about Ireland paying half a billion? And what of the supreme irony of Portugal, who T-PAN said would be next to face the markets, paying the biggest percentage of their GDP in loans to Greece?

Our banks will benefit from being able to borrow from the ECB against government bonds - something they would not be able to do after the inevitable further downgrades of Greek debt without a bailout. Insofar as that increases lending that might be a good idea. But given the fact that our banks' loan to deposit ratio is way lower than 100% (80-something if memory serves), the return on this injection of cash may not stellar. But it will do wonders for capitalisation - for now.

But along with our banks, the big winners are investors in Greek debt in general - especially those that bought recently - as they bought securities one whisker above junk and they'll suddenly find themselves holding securities with an iron-cast implicit guarantee. Ka-ching!

And then there are the REAL winners. The ones that really took a gamble on this one - the Eurocrats of Brussels. The Greek bailout has given them what treaty after European treat has refused to cede to Brussels - explicit control of member states' fiscal policy. This is now a de facto reality - and by the time we are our of recession, no one will remember a time when it was not.
An update on this story: our finance ministry has leaked that we would very much like double the amount of money pledged by our partners, just minutes after the aid package was announced. Oh dear.

Full story here

More on the bailout as details emerge.

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