EU Counting on Harry Potter or Gandalf to Stop Greek Default
EU finance ministers are inventing numbers and pretending Greek bonds are worth something. This is a fantasy that would put J.R.R. Tolkien to shame.
First, Athens announced it would miss 2011 and 2012 budget targets needed to get further aid. This was followed by news of passage of a budget that would put Greece on track to hit next year's numbers. Shortly thereafter, officials from the IMF, European Central Bank and European Commission pretended to believe this and said it was good enough for Greece to get the next bailout payment of $10.6 billion. But, they added, the check is going to arrive several weeks later than we thought it would.
Then Gandalf jumped up and killed the Balrog. Oops, wrong book.
What really happened was that Greek finance minister Evangelos Venizelos - who previously told us the nation would run out of money by mid-October - said, "We looked under the couch cushions and found enough money to keep us going until mid-November." You lie and I'll swear to it.
Gandalf, Harry Potter, Dumbledore and Sauron
This was only the start of the magic act. Finland has been demanding collateral in order to provide funds for a $150 billion follow-up bail out for Greece. Because neither the Parthenon nor Bilbo's house are worth that much, this seemed like a fatal blow. But then a wizard more powerful than Gandalf, Harry Potter, Dumbledore and Sauron combined convinced Helsinki to accept Greek bonds as collateral.
Greece is going to issue $1.1 trillion in bonds which will be transferred from Greek banks to a trustee, who will sell them and invest the proceeds in AAA-rated 15-to-30 year bonds. Invest the proceeds? "Hey mister, can I interest you in a bankrupt government's bonds?" Greek bonds are already trading at near 40 percent - or about what investors think they will get after a default.
Olli Rehn, the European commissioner for economic and monetary affairs, says negotiator Klaus Regling deserves "the Nobel prize for economics or the Nobel peace prize" for engineering the deal. More like the literature prize for best fiction.
What all this accomplishes can be summed up in two words: Not much. There are still billions in losses that someone is going to have to take. Right now the someone is either Greece, Ireland and Portugal or taxpayers in other Euro nations. It looks more and more like finance ministers or other government leaders may not get to choose which it will. That is likely to be done by the people on the streets of Athens and Lisbon.
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