Friday, 1 July 2011

What now for Greece?

The Greek parliament has voted through an austerity package to get the next tranche of bail out money. Where will this money go?  Well mainly to Greece's French and German creditor banks who have been running huge carry trade positions in Greek bonds.

A carry trade involves a bank buying Greek bonds and then repo-ing these bonds as collateral with the ECB to get more Euros to buy yet more Greek bonds. The bank collects the coupon of say 12% on the bonds but its repo financing cost at the ECB is only just over 2%. Wonderful! What is the snag? Well if Greece defaults on these bonds there are no coupon payments plus far worse the ECB demands its money back and the bank's Greek paper is unsellable rubbish and the banks end up with a bigger than Lehman hole in their balance sheets which will as before have to be filled using tax payers money.

This would be seriously bad news for politicians coming up for re-elections like Sarky and Merkel. Seen in this way one realises Sarky's gestures are simply naked self interest. He wants to use other peoples, ie your money, to rescue his banks. The good old British taxpayer wil pay via the IMF which is now a wholly owned subsidiary of Sarky via its new MD Mm Lagarde who wants to be president of France in 8 years time after Sarky. Her interests are exactly aligned with Sarky's which is why the French were so keen to get her into job.

As Portillo pointed out last night and I opined in this blog some weeks ago the really depressing thing is boy George and cast iron Dave were vociferous supporters of Christine. Whose side are they on? Well not the UK taxpayer. I weep for our country.

Sarky's wizard scheme to reschedule Greek debt along Brady bond lines is all smoke and mirrors and again designed to help French banks rather than Spiros in Greece. It involves a substantial hidden government guarantee that the Germans will not accept. Brady bonds worked because it was run by the US Treasury and the banks involved took a 50% haircut on their loans to Latin America. Oh and the currencies involved were devalued as well.

Its all about postponing the evil day until the Eurocrats can get their hands on yet more of our money and with Dave, George and now Christine to help them they should not have too many problems doing this.

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