Published as a New York Times Op-Ed entitled “It’s Time for Greece to Leave the Euro” , a columnist for the German weekly newspaper Die Zeit starts by asking:
“DOES democracy trump debt? Of course not, not even in Europe. No bank clerk here would be impressed if a family told her that they had voted to have the terms of their housing loan renegotiated — that’s not how loans, either personal or international, work.”
In that case, how come all banks of significant size have Work Out Departments for those who are unable to pay back their loans. And if the bank decides not to reduce the interests, and / or extend the term, and/or even reduce the amount owed (known as taking a ‘haircut’), the borrower has access to the U. S. Bankruptcy Court for individuals or businesses.
If lenders want to be sure they will be repaid, the should invest in overnight “T” bills. The interest earned would be less than one percent over the course of a year, and likely only a fraction of that.
Any higher rate of return earned on a bond is largely a measurement of inherent risk.
Thus when investors in Oppenheimer Funds bemoan the loss of close to $2 billion dollars on Puerto Rican bonds, they have no one but their administrators to blame. Everyone knew for years, for a decade, that these bonds were extremely risky. That is why they were paying such huge interests rates and were rated as hazardous.
The same applies to the German and French bankers who loaded up on Greek debt assuming that Greece could be bludgeoned somehow into repayment. Well, it looks as though this may not occur. The creditors may have to take an even larger haircut than they agreed to over the past few years.
Nevertheless, albeit spitefully, the column arrives at the correct conclusion:
“Neither the eurozone nor Europe is best served by holding on to Greece. Instead, the European Union needs to come up with a smooth way out of its dilemma, namely an orderly exit by Greece from the euro.
“This solution will be expensive, too — among other things, the European Union will have to make sure that Greece’s post-euro currency isn’t so cheap that Greeks can’t afford vital imports, like oil and medicine. Yes, Greece still must be rescued. But no, it need not be rescued within the eurozone.”
As Moses said to Pharaoh, “Let my people go.” Amen.
