The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
In which fictional alternative universe does that make ANY FUCKING SENSE?
Friends come and go. Enemies accumulate.
You see, we don't want a fiscal transfer Union from the centre to the periphery - its supposed to be the other way around...
Index of Frank's Diaries
The whole damn point of buying back your own bonds at a discount is that this increases the net social wealth, because it removes a default premium (the default premium on bonds outstanding is a cost to the bondholder but not a gain for the issuer - by buying back the bond at a discount, the issuer gets to book the risk premium as a gain... but this doesn't cost the holder anything).
It's insane, I know, but the insanity of the European economic establishment is what we have to live with.
Economics is politics by other means
in the Greek case it's not that Greece is forbidden to buy back part of its debt in the going rate (at 70c to the Euro), just that it cannot use the Special Fund's money to do so.
Consider this from the position of a creditor bank in a creditor country where long-term funding costs are 4%.
Debtor country bonds are now selling in the secondary market (and being issued in the primary market) at 10%.
You can fund yourself at 4% and buy the bonds at 10% in the secondary market, pocketing a 6% margin. However, there is a risk of default. If there's a default by the debtor country, you not only don't make 6% but lose your 4%, and the principal.
To avert a default, the creditor government lends money to the debtor country at 7% to pay interest. The creditor country makes 3% margin, and the debtor country can pay its interest. The market is kept in jitters about default risk so the bonds still sell at 10% in the secondary market and the creditor bank can continue to make its 6% margin from buying in the secondary market.
If you allowed the debtor country to buy the bonds in the secondary market 1) the creditor bank loses the ability to buy the bonds at firesale prices to make the nice 6% margin since the debtor country always has an incentive to outbid the creditor bank in the secondary market; 2) if the creditor bank sells the bonds in the secondary market they instanty realise a large loss.
So the game here is:
the creditor countrybank cannot be outbid by the debtor country for bonds held by third parties
I can haz honest politicians?
You don't need a fictional alternative universe, you need the real world.
A choice would often be good.
by Frank Schnittger - May 31
by Oui - May 30 25 comments
by Frank Schnittger - May 23 3 comments
by Frank Schnittger - May 27 3 comments
by Frank Schnittger - May 5 22 comments
by Oui - May 13 66 comments
by Oui - Jun 219 comments
by Oui - Jun 17 comments
by Oui - May 3136 comments
by Frank Schnittger - May 31
by Oui - May 3025 comments
by Frank Schnittger - May 273 comments
by Oui - May 2733 comments
by Oui - May 24
by Frank Schnittger - May 233 comments
by Oui - May 1366 comments
by Oui - May 913 comments
by Frank Schnittger - May 522 comments
by Oui - May 450 comments
by Oui - May 312 comments
by Oui - Apr 30273 comments
by Oui - Apr 2652 comments
by Oui - Apr 895 comments
by Oui - Mar 19145 comments