Monthly Archives: July 2015

Bailout? what bailout? Greece need not apply

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The European Central Bank has been buying sovereign debt since March. This is effectively the same idea as the USA’s ‘quantitative easing’. In the US, the Federal Reserve Board (the Fed) printed money. The government printed T-bills and sold them to the Fed. Then the government used that money to ease capital restrictions.

The ECB is doing much the same thing. If you google ‘ecb quantitative easing’ you will find pages like this one. Here are a few quotes:

The ECB and national central banks started buying sovereign debt on Monday under the 19-month plan to inject 1.1 trillion euros ($1.2 trillion) into the economy.

“They know it will not be easy to purchase 60 billion a month including covered bonds and ABS, so they have to deal very cautiously,” said Patrick Jacq, a senior fixed-income strategist at BNP Paribas SA in Paris. “The market remains in positive territory but there is no further acceleration, which means that apparently there is no squeeze on any paper.”

National central banks purchased Belgian, French, German, Italian and Spanish debt, according to people with knowledge of the transactions, who asked not to be identified because the information is private.

Euro-area bonds extended a 14-month rally fueled by speculation that buying 60 billion euros of debt a month will create a scarcity of government bonds among buyers of the securities.

Notice that Germany benefits from this ‘deal’, and Greece does not.

Does that seem fair to you? That’s the dumb question.

Greece, Germany, and debt – is this really fair?

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The persons of interest here are:

  • Angela Merkel, Chancellor of Germany
  • Alex Tsipras, Prime Minister of Greece
  • Carl von Clausewitz.

Allow me to begin with a quote from von Clausewitz, which you can find here:

War is merely the continuation of policy by other means.

Alex Tsipras is trying to get a better deal for Greece. There is a historical precedent for this, which you can find here. I will give a quote:

The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact.

Just which countries forgave half of Germany’s debt? Belgium, Canada, Denmark, France, Great Britain, Greece, Iran, Ireland, Italy, Liechtenstein, Luxembourg, Norway, Spain, Sweden, Switzerland, South Africa, the United States, Yugoslavia and others.

Note this also:

An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings.

If you look at this page, you’ll find that Germany may morally owe Greece war reparations.

Greece has formalized its claim to reparations from Germany over the damages from World War II. They now say that the figure owed is €279 billion. That figure, made up of damages, forced loans and interest and inflation on those sums is of course a pretty sum.

On to Angela Merkel. She seems to think that economic war is the continuation of war by other means. Here you will find these words:

Over the weekend, I spoke to a couple of knowledgeable observers who both expressed the view that the European Union, and Germany in particular, had deliberately instigated a confrontation to bring about regime change in Athens.

In the same page you will find Tsipras again:

Tsipras’s Syriza Party government put a detailed offer on the table that went some way toward meeting its creditors’ demands for a continuation of austerity policies, but that also requested recognition that Greece urgently needs some debt relief. Rather than accepting this offer as the basis for an agreement, Greece’s partners demanded further cuts in pensions and other government programs, and they rejected outright the idea of considering debt relief, saying that it should be left to a future deal.

So much for the ‘persons of interest’. Now for the observation:

Is it not clear that Greece must have, is due, and should get, debt relief?

Is it not clear that Germany morally owes Greece a lot?

Those are the dumb questions. Have a nice day.