Euro Area

[phonicsmonkey]

if they were put into examinership or recievership

Then their bad loans would have to be marked to market, their creditors and the counterparties to all their transactions would realise a whole load of currently unrealised losses, financial contagion would spread like wildfire again as banks would be unable to lend to each other and to industry, the economies of western countries and quite possibly export-driven emerging market countries would fall off a cliff and we'd fall back into a depression the like of which we haven't seen since the 30s.

Which is why the government stepped in to begin with, right?

[Fragony]

Then their bad loans would have to be marked to market, their creditors and the counterparties to all their transactions would realise a whole load of currently unrealised losses, financial contagion would spread like wildfire again as banks would be unable to lend to each other and to industry, the economies of western countries and quite possibly export-driven emerging market countries would fall off a cliff and we'd fall back into a depression the like of which we haven't seen since the 30s.

Which is why the government stepped in to begin with, right?

So they say, plenty a top-economist insists it's better to default, for us and for these feta-munchers

[phonicsmonkey]

So they say, plenty a top-economist insists it's better to default, for us and for these feta-munchers

Let's be clear - to all intents and purposes Greece has defaulted. It can't pay its debts and others are being forced to do so for it. The only debate is whether the resulting loss is taken by governments (via bailout funds) or by the banks that hold its loans.

For me the scariest chart I saw throughout the whole financial crisis in '08 had nothing to do with bank losses but showed the volume of global trade. It fell off an enormous cliff because banks were not extending the finance necessary to keep it going. World trade is the world economy.

Whatever you think about the causes of all these issues (and I am increasingly coming to the view that there was clear fraudulent activity on a massive scale in the origination and packaging of the sub-prime mortgage loans) one thing is clear to me: the banks are in too much of a mess to be simply cut loose. This was true in '08 and it remains true now because substantially the same problem exists and has simply been moved from one place to another.

[Furunculus]

one thing is clear to me: the banks are in too much of a mess to be simply cut loose. This was true in '08 and it remains true now because substantially the same problem exists and has simply been moved from one place to another.

only problem is that western governments no longer have any spare money, or any good credit, with which to launch into round 2.0 of the bailout circus.

[phonicsmonkey]

only problem is that western governments no longer have any spare money, or any good credit, with which to launch into round 2.0 of the bailout circus.

I think Germany and France are creditors of sufficiently good standing to sit behind the eurozone debtors, if the political will were there. Which of course it is not.

[Furunculus]

I think Germany and France are creditors of sufficiently good standing to sit behind the eurozone debtors, if the political will were there. Which of course it is not.

france isn't.

and as you note there is no political will to subsidise non-family massively in perpetuity.

[phonicsmonkey]

france isn't.

and as you note there is no political will to subsidise non-family massively in perpetuity.

Germany and France in combination. Even better for them if others get involved to share the load.

As I've outlined here before there is no realistic alternative to their continuing to stump up the cash required to keep Greece afloat for the foreseable future (aka kick the can down the road and hope for something to happen to help them out).

Either they do so, or they let Greece default which will cause european banks to have to recognise huge losses and hold larger capital reserves against the bad loans, which in turn will kill off trade finance, world trade and impact global growth. Cue market panic!

Or they allow their precious Euro to break apart, Greece devalues and effectively defaults causing the same issues.

Or they create a political and fiscal union and issue Eurobonds to replace the entirety of eurozone sovereign debt. Goodbye Germany and France as sovereign countries!