Why, for Greece’s and Europe’s sake, the PSI ought to fail

Headlines the world over ‘agonise’, on behalf of Greece and Europe, on whether the PSI+ negotiations will come to a conclusion. The presumption is that, if they succeed, Greece will be reprieved and Europe (with France and the EFSF having recently been downgraded) will buy some much needed extra time to put, at long last, its house in order. Nonsense, I say!

This PSI+ is yet another assault on Reason. It constitutes, as I have already argued, a fallacy in search of a rationale. It should be allowed to die a quiet death. Greece should simply announce that its March bond repayments are postponed until a comprehensive solution is found; one that includes a solution not only to the Greek malaise but also to the problems of Ireland, Portugal, Spain, Italy and, of course, of the French and German banks (not to mention those of the periphery). If anything can persuade Mrs Merkel and Mr Sarkozy to act in a rational manner, it must be an unruly Greek default. Averting that default in March will simply give our leaders yet another excuse to keep fiddling while the eurozone is burning.

But will a Greek default not mean that the CDSs will fire? Yes, it will. Will this not cause our banks big problems? Of course it will. Will the ECB not have a fit at the thought that it will end up with oodles of worthless Greek bonds on its books? It surely will. But these ‘disasters’ are, compared with what is going on presently, blessings in disguise:

  • The CDS payments will force Europe to end the denial regarding its banks’ state.
  • The banks will become much more amenable to recapitalisation by the EFSF (as opposed to relying on the ECB’s LTRO and on shrinking their loan books). 
  • As for the ECB itself, it will have to come clean about the true nature of its LTRO and bond purchasing program; to abandon the pretence of having nothing to do with the eurozone’s fiscal side of things.

Europe will be, in summary, forced to look, for the first time since the Crisis erupted, for a comprehensive solution, as opposed for a way of hiding its problems under a very thin carpet.

My rationale is simple: From the beginning, in May 2010, the various Greek bailouts have given Europe an excuse for avoiding the harsh realities of this systemic Crisis. They kept buying time by micromanaging Greece’s debt repayments month-in-month-out. Meanwhile, the Greek social economy was imploding (with investment grinding to an halt and capital flooding out) and the contagion was spreading like a runaway forest fire northwards and westwards. Something has to give. This vicious cycle has to be broken somehow. The announcement of some PSI+ pseudo-deal will feed this cycle, not break it. In contrast, an official PSI+ failure, followed by a Greek default in March, stands a great chance of devastating the vicious cycle currently consuming the eurozone.

To those who argue (especially here in Greece) that Greece can still be saved in the context of the recently agreed policies, my response is: Nonsense! The combination of Greece’s Bailout MkII and of the Greek PSI+, even if it succeeds fully, cannot put Greece back on a sustainable path (to… 120% of debt-to-GDP). That would require not only a 100% participation rate in the PSI+ (something that will simply never occur) but also a growth rate for the Greek economy of at least 2%. Under the current recessionary climate both within and without Greece, the latter is as likely as the prospect of a flood in central Sahara. So, since Greece’s debt is, independently of the PSI+ deal, on an unsustainable path, it is imperative that we stop kicking the proverbial can up the hill and opt for a comprehensive default.

The result will not be pretty. But it will be far preferable to what we are experiencing now. To those who take for granted that a Greek default leads naturally to a Greek exit from the eurozone, I have a simple question: Why? Why can Greece not default within the eurozone? Why can the official sector (the EU-ECB-IMF troika, together with the EFSF) not fund the banks directly (without giving the hedge funds a penny and, instead, letting private investors benefit from the CDSs they have bought)? Indeed, why would the surplus countries want to throw Greece out of the eurozone when it is abundantly clear that this move would start a short, sharp process of disintegration (with Portugal and Ireland following suit)? By what legal means will the surplus countries force Greece out, even if they choose to do so? And why would Greece choose to leave if it can default within the eurozone?

In short, any jovial announcement of the PSI+’s success will be detrimental to Europe. On the other hand, an official failure of the PSI+ negotiations, followed by a temporary cessation of payments by Greece to its creditors (until a genuinely comprehensive solution is found for the Euro Crisis as a whole), appears as possibly the eurozone’s last chance for arresting this agonisingly slow slide into oblivion.


  • yanis the answer, bien sur, is that the BANKS woudl suffer and they control the politicians !!

  • But, Dear Yanni,
    what if the Greek banks go under from a default and are not in the end funded by the “official sector” (who is that by the way, the ECB)? What if instead, they just go bust in a vanilla way (either from bond-related losses or by simply getting bank-ran on) and close doors?

    If this dire outcome does occur, which I believe to be the most likely of possible outcomes, is it still then going to be undesirable in your opinion to issue national currency, in order to redenominate all debts (+deposits, bonds etc) and move on from there? And if still undesirable then what is the alternative? Post-modern versions of barter trade or cash-and-carry? Many Greek businesses are already operating to a limited extent in this zero-liquidity mode and are scared of it like hell.

    I am fed up with epithets (“madness”, “suicide” etc) regarding a very likely future and would like some comprehensive analysis for a change. Thank you kindly 🙂

    • The ECB will never stop funding eurozone banks because bank closures within the euro area will lead to a chain reaction of bankruptcies that will spread quickly to France and Germany. What a Greek default may do, if Germany refuses to take steps toward resolving the accelerating crisis, is lead to the former disintegration of the euro. That will be the point for Greece either to re-issue the new drachma or to join some other southern currency area. To issue drachmas now, while the rest of the eurozone is intact, would be (I am afraid) suicidal.

    • To first reach a deal over a hufge haircut & get bailout money and then issue the NEw Drachme may not be so stupid.

  • Hi Yiannis! Although i was quite relutant to your point of view of the CRISIS, i admit that you have persuaded me that the problem is not only Greece but the whole Europe. What i would like to ask is whether the Eurobonds ( which i think imply “printing money” )you recommend are linked with an inflation increase. As we know from the Economic Theory it can happen, but i am not persuaded if these Eurobonds will have inflation impact on real economy. Thanks!

    • Not in the slightest. Bonds issued by the ECB will have no impact whatsoever on inflation. Remember: this is exactly the opposite of printing money. It is borrowing money, at low interest rates, on behalf of member-states.

  • Where are the great leaders of Greece gone? Is there someone left to take care the helm of the couintry and drive the country to the right path? Who is advising our leaders?
    I hope it”s not Merkozy!

  • ok, lets assume that Greece defaults within the Eurozone. What is goning to happen with the Greek banks, greek salaries, pensions and so on? Nobody will lend us anymore, right? How are we going to get out of the tunnel? Will Europe help economicly?

  • Well said Yani.

    BTW, Greece needs not to announce a suspension of payments in mid March. The other way of looking at it is that Merkel has until March to put on the table another plan (completely devoid of PSI+ or PSI-) which works (aka Modest Proposal and or its derivatives).

  • If you can manage to have every CDS owener eat his cobtract so that the likes of BNP, ,,SoGen, DB etc don’t go pankrupt it would be fine.

    Otherwise the true solution is a Jubilee proposition whereby both sovereign and core banks have their debts slashed. This is what one of the biggest swiss banks are proposing. and i think they are right.


    Otherwise the whole western banking system must be restructured into smaller pieces
    so that those who ought to fail fail.

    Greece has never been able to balance its budget because its tax take was not enough
    owing to the venality and greed of its plutocrats, the “diapkoki” all around and the moral
    bankruptcy of its political class.

    See this very perceptive piece from Mazower:


    • Kindly excuse the typos. I wrote very fast without a corrector.


  • Default or a succesful PSI+ is not the main theme. After all, markets soon or later will move downwards because the bankers plus hedge funds can not make money from the upside. The main theme is the production model that Greece should follow from now on. As there is a PM that is not legally elected plus there are so many corrapted politicians reign in the Greek parliament with a huge number of public servants untouched any kind of solution is a black hole.
    Should any gun fights take place shortly hm… might please me alot!!
    P.S. No Fear

  • to deuce:
    banks will suffer one way or the other. it is unavoidable for them.

    The truth is always devastating. Perpetuating a lie by covering it with a bigger lie seems to be inherent in human nature. It is the same thing with economic bubbles and debt. Which is why none of the leaders will listen to reason and face the truth about the eurozone. Even if there can be found one who does, even if he tries to or takes the corresponding action, he will be condemned by not only other leaders, but his people as well. It is therefore not his fault, really, that he perpetuates the lie. Sadly, the truth will be utlimately exposed, if so, when the bubble bursts on its own, and not before, owing to human action.

    We’ve seen that play before, we all know how it is going to end, although very few of us want to admit it. Hope. You see, lies give people hope, and with hope comes the certainty of a better future. And it is this certainty that each one of us wants to have in their lives. We want to go to bed at night and feel certain that the next day the sun will be still shining, that we will still have our jobs, our wives and husbands will still love us, that our views on politics, economics, science etc will still be valid and unchallenged, that every decision we made so far was the best, that … everything. Uncertainty is bad (is it now?), to be avoided by any means, we cannot withstand it for long. Which is why you listen to a lot of Greeks saying: “let us default and get it over with”. Certainty at all costs, even if it is for the worse.

    Is the PSI+ good? Is it bad? Should we default instead? Should we stay in the eurozone? Go back to the drachma maybe? Some argue for the euro, others against it. Who to believe, who to trust? Is Papandreou a traitor, or a savior? We need to know for sure. We need to have definite, absolute answers. But my friends, nothing is certain, nothing is absolute, never was and never will be. And for that, I am absolutely certain. 🙂

    • I see you are one of the strugglers in class. Here is a “skonaki” for you:

      PSI+ is bad (very bad, or no good since you like choices).
      Eurozone stay for Greece – Yes.
      Back to drachma – no.
      Argue for the euro – No, we are in it.
      Who to trust – No one.
      Papandreou a traitor or a savior ? Neither, just a man who reached the limits of his competence.
      We need to know for sure – Then follow my advice.
      Define, absolute answers – Trust me. I can be a real bad ass dictator.
      Nothing is certain – that depends on your intelligence. For most people there is no certainty. For some others there is plenty of. And for this, my last statement, I am absolutely certain (which means we finally found something in common). 🙂

  • Greece should “disorderly default” tell the EU,ECB & IMF to take a sexual exit, Greece will get out of the EU & Euro, Invite Russia to park its fleet in Crete, accept Russian, Chinese loans and investments. Nationalize all banks in Greece foreign and domestic, establish a provisional military government to get rid of all Greek & foreign parasites/scum-bags, then we will have a healthy Greece. Greece would have been better off joining the Sicilian MAFIA then the EU. Somebody has to destroy these banking criminals, let it be Greece, the world will applaud us with gratitude.

    • Alternatively, we should just default and watch Europe rush into the debate they had so far avoided…

  • Yani
    The front page of the Independent in London tomorrow Wednesday screams ..” Greek bailout agreement blocked by greedy hedgefunds. “…they have caught on to the story.

    It is imperative that Greek economists of your stature come on media and provide the facts about what has been happening in the last two years,,,and reverse the depiction of Greece as the root of all evil and the cause of the problems of the Eurozone..Merkozy and their aims but be exposed.

    Have you been interviewed by Newsnight ?

  • But will a Greek default not mean that the CDSs will fire? Yes, it will. Will this not cause our banks big problems? Of course it will.

    How much is outstanding? I am just saying maybe the amount is not that big to cause the big problems you suggest.

    Why can Greece not default within the eurozone? Why?

    Ok, say Greece defaults AND stays in the eurozone. Then what will stop the other indebted eurozone countries from doing the same? I can just imagine the Irish saying to themselves, “Be Jaysus! The Greeks pulled it off. What are we waiting for! ” 😉

    • Indeed. This is exactly what should happen. All member-states that have been frozen out of the markets should give notice of their intention to write down, unilaterally, part of their debt. And let the EU find an alternative to the loan-austerity duo which is, currently, destroying the eurozone in its entirety. As for Ireland, it must default immediately on its silly promise to Irish bank bondholders.

  • This post is off topic, and I sincerely apologize for it, Yani. Delete it if you wish. It’s just that I came across this very upsetting headline from The Philadelphia Inquirer: 88,000 Pennsylvania Children Lose Medicaid Benefits

    As Americans are quite fond of reminding the world, the United States is the greatest country in the world. (Not!)

    To my fellow Greek-Canadians . . . let’s thank our lucky stars that our parents chose Canada over the United States.

  • What does the socialist candidate in France say about the Modest Proposal? Or any other alternative?

  • Mark Mazower has written a fascinating article on how the great changes have all started from Greece. From the War of Independence in 1821, a leader in national self determination and a catalyst in the demise of the Great Empires, through to the resistance against Fascism and Nazism and the ensuing civil war, a precursor to the Korean then Vietnam Wars. And in this exceedingly interesting historic time we are living in, he believes it will happen again this time too. And it will. I think Yanis is perfectly right in his analysis here and I hope we should start bracing ourselves for the great shake up that will inevitably come sooner or later, no doubt with Greece as its epicenter. Fingers crossed that it is now, rather than months down the line again when the ‘Final Solution’ of the PSI+ pushed by Merkel flounders once more.

  • Yes! Yes! Yes! This is fighting talk. I am right behind it. My only concern is that to pull it off we need a resolute political leadership (and there is the real crisis at the moment – a political crisis, not an economic one). And it is at times like this when I start to doubt my previously unshakeable commitment to radical democracy, because it seems so blindingly obvious that at this historical juncture the only practical solution is to fall in line behind some sort of charismatic, kick-ass Chavez-esque figure – a bit dictatorial (yes) but what other sort of figure would have the spine (and other bits of anatomy) to tell the Euro-bankers, the hedge-fund-casino-mafia types and the economic assassins that the game is over? Where is the Greek Chavez, though? Ποιος εχει το σθενος και τα κοτσια να κανει κατι τετοιο, και να ρισκαρει τα παντα? If you are up for it Yanis, I’ll help with the campaign. Just say the word.

  • Hello Yanis,
    our politicians have proved, that they don’t care much about right or law. What ever they want to do, they will find some hole, they have previously let put inside the laws for such cases… So, yes, I don’t doubt they will find a way, to force a greek PM to exit the eurozone if they want.
    Now do they have a rational reason to throw us out? Economic reasoning, as I learn it from you, says clearly no. But as you already have stated yourself many times, we are in a situation, where our politicians do not handle rationally. Especially Ms.Merkel has helped – fueled – a moral discussion in Germany. She is responsible for an emotional longing for a penalty for the “fallen”. She has nurished this spirit herself and is bound to satisfy it to the end.
    My personal remaining hope is a change of governing coalition in Germany. This is not that unlikely, because the liberals are already angry and will not tolerate the ECBs policies for long. And when Germany has a new coalition with SPD and the Green party, then the whole situation will be different.

  • Dear Yannis,
    thank you for your reply to my previous “what if the Greek banks go bust… (regarding issuing drachmas in such an event)” post. Your answer however that “.. the ECB will never allow banks to go bust…” is not entirely convincing for me, mainly because it is partial (incomplete).

    In particular, if Greek banks experience a (fast and furious) bank run, which I believe to be most likely in the case of government default, what technique will be used by ECB to channel funds to the Greek banks? You sound too convinced that it will happen, so if you have something in mind, please share it with me.

    On the contrary, the ECB may decide to channel funds to the Franco-German banks, to cover *their* losses from exposure to Greek banks. I am not arguing that it will *succeed* in shielding them in the end, only that for some time—months—it will try this strategy, letting Greek banks drop.

    But this will leave the Greek economy with no banks (and no access to savings!!) for a prolonged period.

    Am I missing something?

  • Maybe we have to consider the “inherent error”: Merk-ozy try to treat Greek problem in a way that highlights the fact that it is a special, unique one. In that respect, the solution should also be extra-ordinary and “abnormal”:
    a)Default YES but NO CDS trigger (even covered CDS, used as a normal hedging tool against underline portfolio government bonds),
    b)Private Sector Involvement YES but NOT for other countries (unfair and stigmatizing for Greece, leaving the door open for social death penalty, extraordinary austerity measures in exchange of pseudo dilemma of staying in E-zone)

  • I seriously doubt that anyone – whether in Germany or anywhere else – sincerely objects to your diagnosis regarding the systemic nature of things. In fact, it is precisely for this reason that a systemic solution has been put off so far. Fiscal discipline has been prescribed in an attempt to contain what might be regarded as “German losses” from an inevitable systemic solution like your eurobond proposal.

    Yes, it is absurd for the Irish and the Spanish to go along with it. However, the Greeks could have legitimate hopes of getting something positive out of fiscal austerity. You have to admit that a systemic solution like the eurobond would sadly relieve the pressure currently on Greek authorities to push forward with long overdue reforms. I mean, look at what it took for the Greek authorities to finally start doing elementary things, like starting to count the number of people employed by the general government for example.

    German “autism” is Greece’s best hope of ever undoing the mess they have made out of their public sector. A European solution I am afraid would simply kill all hopes for the much needed reforms in Greece.

  • Ok let us default then. Can someone tell me how the average Greek will react in the announcement of disorderly default? They will massively run to super markets (they have done so in less important occasions in the past why not now) and banks (in fact it would be more likely to win the lottery than finding an ATM with cash). The prices of the goods will skyrocket (fuel prices increase within hours in the mere announcement of a truck drivers’s strike). The clients will dissapear from every other shop and every professional selling a service will find himself without clients. People in the private sector will be the first to hit hard from the default. Public sector employees will probably find a way (they always do) to get a bit of public money to survive. I am sure that someone who knows well the greek mentality can easily describe the public panic and the depression that will follow. Do you think that this mess will make tha EU or IMF beaurocrats and the politicins to sweat? I don’t think so. Default is for many people a purgatory from the sins of the past wasteful years. So instead of throwing firework-like solutions onto the table lets think about the real causes of the greek “illness” and not blame the crisis only for what is happening to us. We created a sick country that cannot withstand even in the weakest blow of the wind, and of course not in that hurricane.

    • There is no need of a misleading scenario, we Hellenes have always managed and always pulled through, we are not a stupid race in an under developed country, nothing of the kind is going to happen, you must not be a Hellene to think that way, we Greeks in times of disaster always stick together, it is the foreign bastards who want to exploit us that we must get rid of at all cost. Greece with its untapped reserves will be the richest country in the Mediterranean, this is why they want to take over Greece. If our puppet Prime Minister signs off our country he will hang in Constitution square along with who else agrees with him, you can count on this. As I previously said the minute we are closer to inviting Russia to step in, if we are that desperate, the West is going to be kissing our you know what, Do not under estimate Hellenes. We are not Europeans, We are Hellenes and very proud of it. As for Greek “Illness” It is the foreign scum-bags that brought it to our country and contaminated our people, no more, we will now make use of antibiotics that will kill that germ.

    • A foreign scum bag replies to Stylianos: Recently read the history of Kileler by Θωμας Ψυρρας. Interesting to see the behaviour of wealthy Greeks back in the 1870s here in Thessalia, falling over themselves in the rush to become despotic τσιφλικαδες, taking over from the Turks as they retreated, some even keeping the old Turkish tradition of raping the daughters of the (Greek) peasant κολιγους. So much for patriotic unity. So much for “Ζητω Ελλας!”

      The task now is not to fall back into some idiotic xenophobia. The task is to love Europe – to love it for what it can become (which also means hating it for a lot of what it is at the moment). There is no need for Europe to be nothing more than a continent-wide shopping mall. We need a Renaissance led by people with both guts and imagination. The ball is now firmly in the court of the Greeks. Will you take it and run with it and blaze a trail across the firmament of Europe, or will you leave it and sink into backbiting?

    • I do not take into account foreign criticism because most of it is fabricated fiction by Europeans and mostly Anglos that do not have a right to criticize after they raped and looted the world for centuries and now they do not even own their stamp size Island, justice speaks for itself!
      Obviously Europeans do not like us because we are not Europeans and will never be, we are happy to be what we have been for thousands of years, It is about time Europeans take a hike and leave us alone, no more exploitation of Greece and while they are at it please send back our stolen treasures.

    • If Greece is indeed the problem, then what about ireland, portugal. spain, italy, belgium and france? What about the U.S. for that matter? What about the eastern european countries which are being destroyed by the “strong” euro policy? Pretending that these are different issues won’t solve the problem. Neither willl austerity which is prooving itself to be a killer. Either we are about to have a blanket solution, or just sit back and hope for some kind of divine (aka martket) intervention.

      Yannis in November (i think) stated that PSI was a fraud, and the EFSF doomed (in this form at least). He pointed out that several funds where purchasing parts of the Greek debt in order to deny the haircut in the long run, so that their cds will be fired. This is what is happening right now. They have been warned.

    • I do not think the average person would get cracy in a default. We have about 1 sovereign default per year in Europa & South America together.

      At the end sovereign defaults are a redistribution of wealth from the top to the bottom and thus a very social elelemt of capitalism.

  • Dear Yani,

    “To those who take for granted that a Greek default leads naturally to a Greek exit from the eurozone, I have a simple question: Why? Why can Greece not default within the eurozone? ”

    very simply: because, wrong or not, Germany won’t take it.

    I think the answer to your hypothetical scenario of was already given in November. The (never held) referendum that ended Papandreou’s government was, in a way, exactly the type of bluff that you are proposing, aiming to put pressure on EU leadership to change its course, or else…. The bluff was short lived. All it took was for Germany to say “Not in my house” and there was a new government in Greece. Likewise, if Greece announces it will stop making payments, the rest of the EU will respond a “too bad” and a “farewell” and deal with the mess. Does anyone on this blog you know the politician who would take the responsibility for having made this decision? I would think that they are not to be found even in Perissos.

    The reason a bluff of this type will not work is simple: Greece has a losing set of cards and everybody knows it, whereas the bad sets of cards of the other players are still mostly hidden.

    Maybe I am wrong, but it appears to me the only real question we have to answer if we are considering to stop making payments to Greece’s creditors is: how do we cope and how do we get back on a path to development after we are back on the drachma.

    • We will cross that bridge when we get to it. We are not bluffing, we must get out of the EU, we can make it on our own, have more faith in our people.

  • As you know my preferred global (eurowide) solution to the problem of overindebted states and banks is a generalized haircut for states and banks. (This is the solution proposed by serious swiss bankers). Greece 75% haircut of all debt, Germany 10% etc.
    The Romans burned the books of debts every fifty years at one stage.
    I have a question to ask now:

    Let us suppose we default. Is it possible to operate with two currencies? (Euros and drachmas)
    The shipowners as well as the tourist trade operate with hard currency. This comes out to about 30% of receipts of the gdp. If people working in these sectors get paid in hard currency and the rest of the population works on the basis of drachmas we will begin to get the TTE
    to operate like a central bank fixing and manipulating the exchange rate. If the drachma
    is initially set at a very low par value we will begin to get competitive pretty fast.
    This system is obviously unjust to start with and will be very confusing as well. My hunch is that after an initial wild phase some sort of “equilibrium” will come about.

    Yugoslavia uses both dinars and euros. Venezuela uses Bolivars and USD.
    Russians use Roubles USD and Euros.

    Food tokens in the US are used as money in supermarkets

    So, this is not as farfetched as it might sound.

    Any ideas on this issue?

    • Currency competition is never bad. At the end both currencies will be used by everybody, but for different purposes:

      Assuming the EUR would be harder than the Drachme:

      – EUR for savings
      – Drachme for transactions

      Greham´s law: “Bad money drives out good money”

    • one is not competitive by himself. first u need to produce something of value, and it is that product that is competitive or not. if u r not producing anything than u will never be competitive and u can do whatever monetary/fiscal policy u like. it will be irrelevant…

  • With the respect to our great politicians the result will be a new glory and great success to the negotiations of PSI+. Mr Venizelos will announce in few days that the haircut will be between 60-65%. Greece will avoid the bankruptcy for the moment and we will talk about new measures and taxes with deeper recession. Such a success!!!!!!!! The elections will come with our politicians – saviors ask our vote in order to succeed what???????? An amazing 35%, 40% or 45% unemployment (note the official unemployment is up to 19% currently and unofficial 25%). Also note that such a recession had happened to Greece in World War II. The IMF recipy is so bad as a very bad doctor.
    I think the core of European Union will still behave foolishness and still persuading some people that the problem is still Greece. The truth is that the economic bomb is about to explode. Modest proposal maybe will be a solution. Drachma will also be a DRAMATIC solution. A balanced budget maybe the new reality with extended cuts to all levels. But one thing is sure. Our heavy pocket politicians will try to persuade us that are heroes and did their best for the country. There is a solution. Put the bomb to the core of EU. But the great stupidness comes from the EU South. Neither Italy nor Portugal, Spain, Ireland want to have common line with Greece. A strong political answer from those countries will be an asset and the beginning of a new era. But the political status to those countries is poor too. The involvement of ECB as the FED does is one road. The ECB must be the one and main issuer for countries debt until a certain limit. Beyond that limit (the rest of countries debt) must be transformated to constitutional debt or inhabitant’s debt in order to manage it themselves. There must be a clean segregation with the debt which allocated to ECB and the debt which allocated as a constitutional debt. Debt for topic health, insurance, social security must control by society by certain rules. Debt for general government (that which allocated to ECB) such as defense, great infrastructure plans etc. could manage politicians between certain criteria. This road is very difficult because allocates the half of responsibility to politicians & the other half to inhabitants. Participative democracy with strong participation of people is the one and only solution with extend changes to our constitution and to EU constitution (who listens to the European parliament…). Extended control to banks, hedge funds minimize the up’s and down’s of markets. But who agree with that????

  • Here are some socio-economics from a layman:
    – I have a reduced pension that even when whole was not enough to sustain me and my family.
    – I want to work, and I am able to, but there is no work for me.
    – I cannot pay the taxes that have been imposed on me now.
    – I cannot pay the taxes that will be imposed on me shortly.
    – I cannot pay my increasing debt
    – I doubt that I can protect myself and my family from the increasing herds of attacks by robbers and rapists.
    Therefore I have come to some conclusions:

    – I do not give a hoot (not to print scatological expressions) about PSI, the EU or my so called government, the rest of the current politicians and their interconnected networks of money sucking interests.
    – I have nothing to loose
    – I want to find ways to resolve the situation without taking out the guns kept from WW II or bought recently from Omonia Square. And that’s me, but I cannot vouch for the others!

    Finally to think about it I am going to a nice place I know where they still play the bouzouki without amplifiers and I am going to give it a once around to my favorite zeibekiko. After this I will announce to the world my solution!

    (any similarity to real persons is coincidental)

    • Stay calm, think of your loved ones, things will change soon, we are going to get rid of all foreign scum bags and corrupt Greek politicians which I would gladly hang for treason publicly, set the execution as an example to what is awaiting future politicians.

    • Dear Styliane. This is the last time I post a comment from you that contains inflammatory language. Please respect this space by articulating arguments, as opposed to insults and provocations to violent acts. You can post the latter on web pages that choose to indulge that sort of thing. Thank you.

  • Yanni,

    The discussion would be useful if:

    (1) One knew both the nominal value and the actual amount paid by the ECB for greek bonds. From what i read in the FT the ECB holds about 20B of the greek stuff. Is this their market value or face value paid by the bank to anglo-german banks so as to clean their balance sheets.

    (2) American and British Hedge funds bought about 20B at 30% of nominal. Their CDS cover nominal value.Who are the counterparties?

    (3) Whether the PSI ” succeeds” or implodes the aggregate obligations of Greece will leave it in perennial debt peonage. Does the Troika know this?
    (4) These considerations have a bearing on your basic policy paper. (E.g what kind of money are we talking about in the exchange of ECB paper with sovereigns?)

    (5) The Greek economy as you know must become more productive and diversified.
    Nobody is coming up with credible programs.

    • On (1): it is their face value.
      On (2): No one knows for sure, even though AIG and GS are ‘heavily’ amongst them.
      On (3): Of course. But their remit is to buy time for Mrs Merkel until she decides what to do with the whole mess. (Or until some of the more ‘malignant’ CDSs expire…)

  • The Greek Debt along with the EU and World is increasing. Worse in my opinion is that it is traded on top, thus both the Debt and the Trade create great amounts of paper with no real value with virtual value created and existing only in Accounting entries. “Production” shifts, from the transformation of free “earth” to value through work, to producing “value” from actually nothing. One effect is that the “desperation” factor increases in the world’s population. This leads to unwanted violence and even war. We are already experiencing such responses world wide. The bursting of the bubble is increasingly probable and the “thin rug” that you say covers the garbage can burst with exponential force. Now, who thinks and plans “solutions” and who executes them. Is it the entities engaged in the vicious circle of increasing “thin air” valuation? I have been greatly educated by you Yiani in the re-definition of the problem and the corresponding solution. But a question keeps bugging me: Suppose a great magician would appear in Brussels and announced that he could wave his magic wand and the whole EU member’s debt would disappear. Would the EU leaders accept his proposal? I could produce a few arguments that they will not, or at best have a very heated debate!

  • Yanni,

    Thanks for the info. I found some numbers here at Bloomberg (7pm 21/1).


    The interest spread is 3-3.5. (nothing about duration). Apparently Dallara is negotiating for an aggegate 48% face value.

    The smart thing to do is for the EU to declare the CDS illegal as of a very near date. This is the way to get leverage. The CAC clauses are not as strong inducements.

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