Could the Eurozone be about to break up is the question raised for me by this clip. Bankers obviously decided months ago to make a loss on Greek debt because a small trading loss over time is better than losing fifty percent on one day. These you must remember are the too big to fail banks that quantitative easing was introduced to save. If they still held the debt when Greece pulls the plug then more taxpayer money would be required to bail them out again. If the banks are not bothered about a Greek sovereign collapse then neither are the politicians. It looks to me as if the banks ditched most of the Greek debt early but who to? Not other banks that is for sure. They are all on the same hymnsheet and the same can be said for the much vaunted sovereign wealth funds. My guess is that the 'investment' will have been passed on largely to the books of the pension funds and insurance companies. The implication of this is that the loss will be taken by your pension pot and investments if you have any instead of being taken by the taxpayer or banks. I would also say that the same process is happening with Portuguese, Irish and Italian debt at the moment. Once this process is complete the bankers will be happy for the peripheral countries to go their own way should the Euro prove irredeemable. It is unlikely to end that simply though. Once the banks financial exposure has been limited the fate of the fragile economies will be more pragmatically dealt with. Suddenly it will be realised that expecting countries to repay unpayable debt is unrealistic after all. Sovereign defaults will be the order of the day to cut debts and austerity packages will be slackened because with much reduced debt repayments they will be able too. Pension fund shrinkage could also be used against workers when renegotiating public sector pension packages. So to sum up. Workers pension funds and investments take the losses. The reduced funds are then used as leverage to reduce payouts and therefore reduce further the public sector debt. A perfect result for the bankers who lose nothing at all and the politicians who will claim to have avoided continental financial meltdown. The losers will be the citizens who will probably endure further European integration as a purported cost of avoiding armageddon. Or I could be wrong. In this case I should so like to be wrong!
Thursday, 3 November 2011
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Are bankers predicting multiple government Euro default in the near future?