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Friday, 25 May 2012

Greek Bondage, Eurobonds and Project Bonds

Greece is likely to leave the eurozone: I have said it ever since the bubble was exposed and it becomes more likely every week. More and more Greeks resent the restraints on public spending that have been imposed [not just by the EU, but more significantly by the IMF] to correct the inane profligacy that the eurorats studiously ignored for more than a decade. So intoxicated were the Brussels sprouts by their power to exploit the inertia and ignorance of the pseudo-statesmen who were notionally their political masters that they just pressed on with the delusory agenda  of full integration that assumed - contrary to available evidence - that all eurozone members were behaving 'responsibly' according to EU treaties and agreements. Ancient Greece was a slave-powered society: Greece today is bound by truly oppressive rules imposed by aliens. The Greek situation is so extreme that once it is tackled by measures that can be given a fair chance of bringing the economy into balance, the other enfeebled eurozone economies can be ring-fenced affordably to the rest of the European Union; possibly even including contributions from Sweden and other EU states that are outside the eurozone.

Investments that might be made in Greece after exit from the euro, by public sector and private investors from Europe and beyond, could support substantial growth of the 'real economy': but only if the investors are sure of the security of the investments. Foreigners will not invest if their assets could be written off by hyperinflation, or if they faced a high probability of being nationalised, or be immobilised by strikes that freeze the stream of revenue. Similar strictures would apply in any eurozone country where investment was sought for projects devised to strengthen productive resources or improve the infrastructure: Italy, Spain, Ireland, Portugal and - potentially - France.

The experience of several countries that have tried quantitative easing [usually explained as 'printing money'] is that the 'new money' is not used to buy industrial assets or  stock in material trade, but to enable the central bank to buy bonds that might otherwise plummet in price if there were no buyers. The propaganda machine says that the intention is to sustain real economic growth: in reality quantitative easing is an additional way of shoring-up 'banks' that brings a huge threat of future inflation of costs and prices [and an additional erosion of personal wealth]. The players in financial markets are very clear of the real nature of this charade and they will not support any such policy by buying bonds issued by a government that is not pursuing serious economic discipline. Thus in Europe there is a strong lobby - led by the less-responsible governments - for the creation of 'eurobonds' that would be guaranteed by all eurozone governments. The funds thus accumulated would be lent to countries and to banks that found it difficult to raise funds in other ways. In effect it would be slightly covert way of getting Germany to shore up financial institutions in Spain, Italy, Ireland, France [and possibly even Greece]. It is absolutely unsurprising that Germany is resisting this.

But now the evidence is unequivocal that the eurozone is in danger of collapsing, with or without Greece, so the Germans have indicated a willingness to consider issuing 'project bonds' with some sort of eurozone backing [perhaps through the European Central Bank]. This would stimulate employment and spending in member countries by building roads, airports, housing estates and other infrastructure that would have demonstrable material existence. The buyers of the bonds would become the indirect owners of the assets, and could be recipients of interest payments directly raised from the assets: this would give a limited guarantee that the money would be properly used according to the intention of the investors. That guarantee would only be as good as the legal system and the economic order within which the investment would take place. Politicians are fantasisers, liars and cheats: the investments would have to be ring-fenced from political  chicanery; then the idea may begin to take up some serious attention.

1 comment:

  1. Greece should not separate from the Euro Zone. If Greece exits from Euro Zone, then Greece should be prepared for the economic problems Greece is about to face.







    By: exchange rates

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