Author : John E. Charalambakis
Date : February 19, 2012
The Eurogroup is meeting one more time on Monday to decide about the second rescue package for Greece. Division among its members regarding the package exacerbates the markets’ uncertainty. In the last few days, the “strong” countries (Germany, Finland, Austria, Luxemburg, and The Netherlands) have been making remarks as to whether such a rescue would worth the effort. However, even within Germany’s government there have been disagreements, with the Minister of Finance taking a much harder position than Chancellor Merkel.
There are serious doubts as to whether the new rescue package will do the job. Let’s review some facts:
The troika now talks about lowering the interest rate on the first rescue package of €110 billion they gave to Greece in 2010. It seems that they still try to violate the economic law of gravity (that you cannot pay interest rate significantly higher than the growth rate of the economy).
We will let the readers decide if this situation is sustainable and also question why doesn’t the Greek government make a simple accounting entry into its budget by registering as receivables the money that Germany owes to Greece through the loans that the Nazi government took by force from Greece, as well as the gold that the Nazis confiscated from Greece along with all the accrued interest? Simple math shows that the amount (even if amortized over five years) generates substantial primary budget surpluses for Greece for the years to come. What are we missing?
Speaking also of German affairs, we are just wondering what is happening with the Taunus corporation which is a wholly owned subsidiary of Deutsche Bank (DB) in the United States. Reports from the Fed show that with a mere equity capital of $4.9 billion it controls assets of over $380 billion! It seems that Lehman Brothers should be jealous about such leverage. Is DB ready to pay up and rescue Taunus if need be, or will it expect the Fed to rescue DB one more time like it did in 2008?
We may be wrong, but it seems to us that the Greek debt even after the second rescue package of €130 billion is unsustainable, the situation with Taunus is equally unsustainable, and that the Euro resembles more and more the Titanic. The question is: Will the maestro order the orchestra to play Mozart’s “Requiem” or Bob Dylan’s “A Series of Dreams” (where the exit cannot be seen with the eye)?