Greece’s selective bankruptcy

Currently, Greece is starring in its own Greek drama. While relations and moods were originally hardened, on July 21, 2011, solutions were found by the highest leadership of the Euro zone by adopting a package of measures. The solutions cannot avoid a selective bankruptcy of Greece.

What happens if Greece itself really goes bankrupt?

‘Every bank in Greece will immediately go bankrupt.
The Greek government will nationalize every bank.
The Greek government will strictly monitor that citizens do not withdraw their money from the banks.
To avoid riots, the Greek government will impose a curfew.
Greek debts are converted into a new Greek currency.
This new currency will be devalued between 30% and 70%.
Several French and German banks will run into problems because they no longer meet legal solvency requirements.
It is impossible to predict what will happen to Portugal, Ireland and Spain.

Everything to avoid a total Greek bankruptcy

The situation in Greece was still at a stalemate in August 2011. It is clear that the ECB (the Eurozone Bank) wants to avoid a Greek default at all costs due to the risk of contagion that a Greek default could mean for the ‘other’ weak brothers in the Eurozone such as Portugal, Spain and Italy .

There were doubts about tough reorganization measures in this context. The risk of contagion is great and the assumption is that a runaway money market could mean the end for the Euro zone.

The following was on the table in the Eurozone:

A new credit of 159 billion euros would be lent to the Euro-zone countries. However, it has become clear that Greece will never be able to repay these types of loans. Greece has entered a recession. However, for repayment they must have an annual growth rate of at least 7% to repay the loans to the EC within 30 years .
The banks will participate through: voluntary rollover of Greek debts. *)
The banks can ‘voluntarily’ cancel part of the debt.
The banks can voluntarily reduce the interest on the loans.
The Greeks are enabled to repay their own debts.
As long as they do this themselves and not the ECB (Euro-zone bank), there is no question of a total bankruptcy of Greece **). Due to the actions of the banks, Greece’s bankruptcy can technically be called partial. Partial bankruptcy is also called ‘selective defaulting’.
The rules for ECB support measures need to be changed: the original rule for ECB support was always that only new loans could be financed. Furthermore, the ECB will be given more extensive powers, so that Eurozone countries can contact the ECB sooner if things threaten to go wrong in their country.

*) Although rolling over the Greek debt, i.e. turning short-term debt into long-term debt, is the same as ‘defaulting’ or going bankrupt according to the credit rating agencies (Moody’s S&P and Fitch), the possibility that the banks will or more voluntary self-rolling included in the package

**) Greece may buy up its own debts, so that the ECB rule will not be violated, that in the Greek situation only new debts may be paid. The ECB will then guarantee this Greek purchase. The debts can then also be spread over a longer term.

The now possible OPTIONS for the Greek problem

1. Letting the debts roll over

rolling over: turning short-term debts into long-term debts.
French banks want to roll over Greek debts: On June 26, French banks proposed rolling over the Greek debts of its banks and insurers. This means that half of the maturing Greek debts will be reinvested in 30-year Greek loans .
In addition, it is proposed that 1/5 of the maturing loans be invested in high-quality bonds as insurance for the repayment of the loans after thirty years. The question is therefore whether 30 percent of the Greek debt will be canceled by them. Given the interest that the French banks have received to date, they would not incur a significant loss on this option.

Germany and other official lenders insist that if they contribute more money to the Greek bailout plan, they have no intention of paying large sums of money to the bondholders. It has been decided that private sector participation will have to be ‘voluntary’.
Germany and France ‘sit’ with large amounts of money in Greece. They are committed to finding good solutions, even if they are long-term.
Unfortunately, the credit rating agencies (Moody’s S&P and Fitch) also believe that rolling over the Greek debt, i.e. turning short-term debt into long-term debt, is the same as ‘defaulting’ (default) or going bankrupt.

2. Stamping the debts to an affordable level

In the FN, columnist Auke Plantinga advocates the following:

The Greeks’ debt must be restructured.
The debts must be reduced to a level affordable for the Greeks: for example 50 percent.
The debt and interest payments must be linked to the growth of the gross national product (GNP) in Greece. That is, if, for example, the Greek economy grows by 5 percent, the debt is revised to 50 percent*1.05 = 52.5 percent of the original level.
If the Greek economy is doing well, the debt will be increased again, but in proportion to the Greek economic performance so that the Greeks can continue to meet their obligations on a structural basis.
In this way, European banks get a share in the recovery of the Greek economy.
This could theoretically lead to the banks getting back even more than they originally negotiated.

3.The privatization option

Greece is a country with mainly public companies. There are quite a few calls for privatizing these companies and making them run better. That also puts quite a bit of money back into the treasury, allowing part of the debt to be repaid. The problem with this option is that unemployment in Greece should be expected to rise disproportionately (due to a civil service of 25 percent of the working population). One can only wonder how much more Greece benefits from an unemployed army of civil servants who receive much less money per month than 25 percent of the working population who receive far too high salaries with little effort from an almost bankrupt government.
Moreover, privatization is no longer an option but a must if Greece actually goes bankrupt. The bankrupt estate will have to be sold in order to be able to pay creditors.

Annoyance of Europeans in the Eurozone

There was a hardening towards the Greeks in the Euro zone:

The Greeks have no desire to suffer for what ‘others’ have done to them.
In addition, people in the Eurozone notice all too well that the speculation of the ‘greedy’ banks has contributed to this situation in Greece. Moreover, the Greek banks themselves are 70 percent ‘in’ the government debt.
Objectively speaking, the Euro-zone Europeans should once again help pay to get the banks out of the doldrums.
The Greeks’ opposition receives little sympathy from the rest of the Eurozone countries.
Without exception, the Euro-zone countries are all having a hard time. Why then help an unwilling country?

Bankruptcy of Greece, a fear scenario

Bankruptcy Law:

1. The debtor who is in the position that he has ceased to pay shall be declared bankrupt by court order, either on his own declaration or at the request of one or more of his creditors.
2. The declaration of bankruptcy can also be pronounced, for reasons of public interest, at the request of the Public Prosecution Service.

Greece de facto bankrupt?

There is no doubt that Greece will soon face major payment difficulties. Yet the moment does not seem quite there yet. Greece is still barely able to meet part of its interest repayments. But what then?
The key element for the situation is that Greece ‘could find itself in a situation where it has stopped paying ‘.

The discussion in Europe now is: do we let Greece slide into a situation that means bankruptcy or do we continue to support Greece so that it does not end up in the situation where it stops paying.

The comment that the country is de facto bankrupt is still incorrect. It is true that Greece’s enormous debt is a cause for concern, but the support Greece has received from the EC countries to date has ‘not yet put it in a position where it has stopped paying’.

So is there still hope that Greece can avoid bankruptcy?

Objectively, the outlook was quite bleak:
Greece was barely able to meet the stringent provisions of the IMF (I nternational Monetary Fund) and the Bank of the European Community (ECB) after receiving the first tranche of money.

It is clear that the Greeks do not feel like taking matters into their own hands. They blame their bad situation on the (International) banks and institutions that have constantly lent their country money and the spending spree of their government.
Yet the Greeks cannot absolve themselves of guilt: tax evasion is a national sport, which indirectly made them thieves of their own wallet . After all, public works and institutions and the entire large civil service (25 percent of the working population) cannot live on air.

It may be understandable that the Greeks are bitter about the situation that has arisen, but it must be clear that they have contributed just as much to it as the overly greedy government and the overly money-hungry banks and financial institutions.

What happens if we declare Greece bankrupt?

In other words: if all banks and financial institutions ‘take their losses’ and cancel Greece’s debts? This would result in the Greeks getting rid of their debts in a ‘cheap’ way and shifting the focus of those debts to the banks and financial institutions that have lent money to the Greeks. There are people who think that is the only right way. After all, those banks and institutions took the risk in exchange for high interest rates.

Easily getting away from the bankruptcy situation of the Greeks is not seen as socially correct. It is easy to blame someone else for your misery, but other countries are not in such chaos because they have generally (with some exceptions, unfortunately) kept their accounts in reasonable order during the great monetary crisis.
It is also not fair to present the well-intentioned and better functioning countries with the bill for a chaotic and unwilling Greece. The money from banks and institutions that are about to collapse and have invested their clients’ savings or pension money in Greece will have to come from somewhere. Europe does not generate money itself: the taxpayer who lives in Europe and the Eurozone does so, who pays it neatly, contrary to what the Greeks have done.

Is ‘throwing’ Greece out of the Eurozone an option?

Absolutely not. Expelling the Greeks from the Eurozone will only result in the Greeks being left with a sky-high euro debt. The Greeks will then have every advantage in having themselves declared bankrupt. They will have worthless drachmas in their hands for the Euro countries, with which they will never, ever be able to pay off the expensive euros. Then the only effect is that the gigantic debt of the Greeks ends up on the Euro countries’ own bread and butter.

The hard truth behind Greece’s bankruptcy
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