International Finance – It’s All Greek To Me

Okay, so let me see if I understand this whole Greek thing.

Greece is up to its ?????? (I’m reliably informed that this is Greek for cojones), in debt and cannot afford even the interest payments given current levels of productivity and expenditure.

The EU proposes to solve Greece’s debt problem by lending it more, which, on the face of it, does seem a tad counter intuitive.

While further increasing Greece’s already unmanagable debt levels, the EU is also demanding austerity measures that will reduce Greece’s productivity so it’s even less able to pay its debts. Okay, I get it that Greece also will cut expenditure, but will this be enough to a) allow it to service its now even bigger debt, and b) compensate for the decline in productivity brought about by the austerity measures? Maybe… but colour me doubtful.

The additional loans will NOT be spent improving Greece’s economic performance so that it can develop the productivity levels needed to service its debts. No, rather the money will be used to service its existing debts.

Hmmm, I remember once explaining to one of my sons that getting a cash advance on one credit card to make the payment on another may not be the best way possible to manage your finances. Of course, I could have been wrong, or maybe it’s different when its an entire country and there are a string of zeros on the end of the number.

The bit I really admire about this strategy is that the new loans will come from the same institutions that already hold Greece’s markers and will be used to service the existing debt.

So the money will circle out of the EU banks’ vaults into Greece’s treasury and then, quick as a flash, back into the EU banks’ vaults.

Meanwhile, the Greeks will be left with austerity measures plus a bigger debt than they started with, while the banks already get some of their money back and have even more money owed to them by the Greeks.

Well that all makes perfect sense.

So what I can’t understand is why some Greeks are less than thrilled with this plan.

International finance, you gotta love it.