Saturday, 24 September 2011

Hope for the Euro?

The cynical street view of the debt crisis - that the German government gives money to the European Union rescue fund so that it can give money to the Greek government so that the Greek government can give money to Greek banks so the Greek banks can repay their loans at face value to the German banks - is set to become reality next week as the German Parliament is set to agree an enormous $285bn contribution to the rescue fund.

Those clever Germans over at Der Spiegel think they know a better way; the German government gives money to the German banks to provide cover for them taking a 50% haircut on their Greek bonds and in exchange for a government share in the banks. They calculate this would cost Germany only $27bn for the German banks and another $16bn to prop up banks in the PIGS - thus saving $242bn. But of course such a step wouldn't force the Eurozone into fiscal union ....

John Redwood sets out the effects of Eurofiscalism on the UK if Dave and Boy George sign up. Both pieces worth a read. 


Nick Drew said...

tx for the Spiegel link, R

Budgie said...

We are already paying to prop up the euro (as if we don't have enough troubles of our own) via the IMF. Dave and Boy George cannot be trusted to keep us out of it.

I continue to be sceptical that the eurozone will disintegrate - the eurocrats will not (indeed dare not) allow it. There may be partial defaults or even ejections round the edges, but everything will be used to protect the euro itself.

Like the King in the Wizard of Id, the eurocrats say "It will take an awful lot of your money to solve this; but it is a sacrifice I am prepared to make".