Wednesday 9 November 2011

Beware of bankers offering loans

It may be true that Greece has bought its troubles on itself. They weren't honest about their economic health when they applied to be part of the eurozone.
State and public corruption was tolerated and they borrowed money they never had a chance of repaying.

However some responsibility surely lies with the banks that lent Greece so much money. Even a cursory analysis of Greek finances would have caused most lenders to hesitate, unless they believed that the debts were underwritten and secured by the eurobank or the richer countries within the community.

This crisis is not about sovereign default. It is about the real possibility of major banks in Germany and France going belly up. Commerzbank is apparently owed €130 billion alone.

The German Chancellor and her French partner appear to be buying time for their banks. The help they are providing Greece is barely enough to pay the interest on their loans. The offer of a 50% write down is seen as preferable to a 100% hit on the banks.

The chances of Greece being able to pay back even half of its debts is questionable, so this is a problem deferred not eliminated.

Germany is a rich country, the only major European state with a trading surplus and a sovereign wealth fund. It exports to its neighbours who are encouraged to borrow to buy Germany's products. Countries with sovereign wealth, created by manufacturing exports, are mirrored by countries with deficits.

Martin Wolf the economist noted that one country cannot keep its surplus and fail to finance its customer countries deficits.

Meanwhile financial volatility is everywhere and John Donne's poem ‘For whom the bells toll’, starts: ‘No man is an island...’ and ends ‘Therefore, send not to know for whom the bell tolls; It tolls for thee’.

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