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hollywood1450@yahoo.ca
Bronte Capital
Articles 

Dear Eurozone officials, Mr Putin is waiting

February 02, 2015

The FT has a remarkable story today about how Eurozone officials are worried about Greece. To quote:

" the fears of eurozone officials that the Greek government was unaware of the precariousness of its financial situation"

This is kind of amazing. There is an old adage - which is that if you owe someone $100 you have a problem. If you owe someone a $100,000,000,000 they have a problem.

Greece's debt (and hence the German/Eurozone problem) is somewhat larger than that.

Moreover Greece runs a primary budget surplus. The only reason the Greek government needs money (ever) is to roll existing debt.

If they default on existing debt that problem goes away.

Paul Krugman summarised the problem with devastating clarity.

Bluntly he points out the Troika (and the above worried Eurozone officials) can't hurt the Greek Government by denying incremental finance because the Greek Government does not need incremental finance.

--

Krugman does however point out that the Greek banks require finance. As Krugman puts it:

"the power of the creditors over Greece comes via the ability to crash the Greek banking system, which is heavily dependent on the ability to borrow at need from the ECB. Cut off that support, and Greece suffers banking collapse. So yes, the creditors have a large club they can use on a recalcitrant Greece."

But Krugman overstates that club. It is entirely within Alexis Tsipras's power to default to the ECB too. Indeed the pattern for government defaults is to simultaneously force a private sector default.

How about this for a negotiating position... we will pass a law to make it illegal for any Greek bank to repay the ECB. Period.

Then have a one week banking holiday, re-denominate all remaining Greek bank assets and liabilities in Drachma, and if a default event passes any court we will nationalise the Greek banks as-per-Washington Mutual - leaving the obligations in some stripped-down shell from which there is nothing to collect.

Finally, in this environment, depositors will receive shares in the new Greek banks in proportion to their deposits. Those shares will be worth a lot because an obscene amount of bank liabilities will be wiped out.

--

This will crash the Greek economy? You make me laugh. We are already at Great Depression levels and removing the burden of your silly debt schedules will be incredibly stimulative.

Sure we will lose access to clearing but Vladimir Putin is lending us a few billion dollars and we have a clearing arrangement in Singapore. [They will do this for anyone from Libyan dictators down...]

Moreover I was once told by Capital One - a respected US credit card company - that recently bankrupted people make the best credits.* After all their past debts have been cancelled and they are by definition solvent. It won't take two years and the financial markets will be happy to lend to us again.

--

Finally we are not a wildly interconnected economy. Its not like Finmeccanica - the Italian company which makes components for Boeing Dreamliners and thus needs the global financial and payments system to function. We do simple stuff, sell olive oil and feta cheese and lots of tourism services.

It won't take long but we expect our beaches to be overrun with fat often drunk German tourists. And we kind of like it that way. The fatter the better. At we will sell them Retsina. It will be cheap and they might learn to like it. You Germans like to drink, don't you.

--

So what do I want?

Enough money that I am allowed to run primary deficits. Fairly large ones. 1.5 percent of GDP would be nice but I will settle for 1 percent. And of course you know we are never going to repay it.

I don't care how you do this. You can do it as a direct subsidy, you can do it any way you like. But as we are not going to repay it so at some stage you are going to suck it up. For political purposes you probably want to dress it in some "equalisation scheme" so it is less obvious what you are doing. But that is your problem. You know what I want.

I am off to the hotel to read a little. Just kick back. Sunday night I have a flight booked to Moscow but I might go early. I hear the girls are hot there.

And besides Mr Putin is waiting.



Alexis...

*On a personal level I was truly told that by a Capital One senior staffer.


Rating: 5.0/5 (1 vote)

Voters:

Comments

batbeer2
Batbeer2 premium member - 4 years ago

Yes, the Greek people can do that. It is after all a democracy.

It is tragic becasue I don't think they have to default. As far as I can tell, they could repay at least half their debt simply by privatising some government owned assets like railroads, bus lines, bridges and harbors. Many Eurpoean countries seem to be functioning reasonably well without their governments owning such assets.

The good people of Greece can vote what they want but they will get what they deserve. It seems they have chosen to hold their heads high and proudly proclaim their independence while shining the shoes of rich tourists. They want their country to be more like Cuba, Venezuela or Argentina and less like Denmark or Singapore.

Anyone have nice set of mint Greek 2015 Euro coins for sale?

That may be a worthwile investment.

Just some thoughts.

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