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What Trichet actually said: Eurozone eyes new deal for Greece; ECB issues threat
ECB officials have warned for weeks that a debt restructuring would have catastrophic consequences for the euro zone and stepped up their rhetoric this week after Eurogroup Chairman Jean-Claude Juncker suggested the bloc was open to a voluntary extension of Greek debt maturities.

"For the ECB, according to our statutory obligations, a debt restructuring would undermine the collateral adequacy of Greek government bonds," the ECB's Stark said.

"This means that a debt restructuring would make the continuation of large parts of central bank liquidity provision to the banking system of Greece impossible."

The comments, and a report in the Financial Times Deutschland, that ECB President Jean-Claude Trichet had issued the same warning to euro zone finance ministers in a heated meeting of the Eurogroup on Monday, weighed on the euro, which slipped to $1.4235.

This may have a simple solution: the Greek commercial banks are put through a special resolution scheme. Good assets (not including Greek sovereign bonds), deposits and branches are put into "good banks"; bad assets (and Greek sovereign bonds) are put into "bad banks". The bad banks are given equity stakes in the "good banks".

Then the ECB cannod deny liquidity to the "good banks".

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu May 19th, 2011 at 11:06:19 AM EST
[ Parent ]
ECB officials have warned for weeks that a debt restructuring would have catastrophic consequences for the euro zone

From this I conclude ECB officials believe debt that cannot be paid back will be paid back through restricting and constricting the ability to pay the debt back.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu May 19th, 2011 at 11:53:18 AM EST
[ Parent ]
If we assume they're not suffering from fungal brain rot - a stretch here, admittedly - we have to accept that they understand the consequences will be default and further contagion.

The real point here seems to be "reform", through destroying what's left of the welfare state in Greece and lowering wage expectations to a Victorian level.

If you accept that "the economy" being talked about here includes the people who own it, but not the people who work in it, the project looks likely to be a success.

The other alternative, or complementary factor, is simple fascist Northern racism.

It's obvious the motivation isn't Europe-building and mutuality - which it might have been, with different leaders.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu May 19th, 2011 at 12:02:44 PM EST
[ Parent ]
The Game, as she is writ:

A cake exists.  There are two players and their goal is to get as much of the cake as possible.  The Play is to use a knife to cut the cake into two pieces.  Both players have perfect forecasting¹.

The approved min/max strategy deduced by Game Theorists is for one player to get the knife, cut the cake, and have the other player chose which slice they want first.

The ATinNM min/max strategy, given the stated Rules and Goal, is for one player to grab the knife, stab the other player, and keep all the cake.  Given both players have perfect foresight the Game is a death match over who controls the knife.  

Right now the German Banks have the knife; they aren't afraid to use it; in fact, they are using it.

Where this strategy fails is: once the cake is eaten, it's gone and the other player will "Cake No More."  Which becomes semi-critical if situation is a series of Cakes, a series of on-going Games, whose existence is dependent on the existence of the other player.  

No such thing as Solitary in Game Theory.

The ECB, et. al., seem to realize this and so are grabbing the knife, cutting the cake, and choosing which slice to take, graciously allowing Greece to continue to live.  The problem with this strategy is, eventually, the other player - Greece - after rounds of getting shafted eventually decides, "Bugger this for a game of soldiers," takes their cake, and walks.  This leaves the ECB, et. al., with the knife and no cake to cut.

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¹ Yeah, I know: we're into 'orthogonal to Reality' territory but bear with it, for a moment

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu May 19th, 2011 at 01:18:33 PM EST
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