Bailing out Germany - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 19 February 2012
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- By Asad Dossani, Author, The Lucrative Derivative Report

Asad Dossani
Week by week, the debt crisis in Europe escalates. This week, Greek and German politicians continue to negotiate in the hopes of reaching a bailout deal. Greece has already received large bailout funds, but clearly needs a lot more. Even if a new bailout deal is finalized, this crisis is not over. They will need more money again later on.

Why is this occurring? They have received so much money; why is it never enough? The answer is that Greece is not truly receiving a bailout. The money they receive from Europe and IMF is simply to repay loans to bondholders, i.e. all that money that comes in goes straight back out to bondholders in Germany, France, and elsewhere.

This is not a bailout. This is using one credit card to pay off another, and this is why Greece continues to ask for more money. The only upside for Greece from this deal is that the interest rate on their debt comes down, though it is still high by most standards.

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Let's ask ourselves what exactly is a bailout? A bailout is equivalent to financial assistance or help. Is this what Greece is getting? It may seem like this on the surface, but actually it is the opposite. The bailout money goes straight to the Greek bondholders. And where are these bondholders sitting? In Germany, of course.

Germany has the largest exposure to Greek debt of any country in the world, so they are the ones that are truly bailed out. Without the bailouts, German banks would suffer tremendously and so would the German economy. Instead, it is the Greek economy and the Greek people that are suffering.

Consider the situation in Greece right now. In 2011, the Greek economy shrunk by 7%. In the last five years, the economy has been in recession and contracted by 17%. The unemployment rate is 20% across the population. For workers under 25 years old, the unemployment rate is almost 50%!

In addition, there are regular strikes, protests, and violence taking place on the streets. All this in response to Greece accepting harsh austerity measures for bailout funds that go straight back to German banks. Given this, it is no surprise that Germany has focused so much energy on ensuring that Greece does not default. It clearly stands a lot to lose.

It is certainly the case that Greece is at fault too. Getting into this crisis was largely their doing, and now they are paying the price. However, the current pattern of bailouts and austerity measures is hurting the Greek economy much more than it is helping. Greece should default as soon as they can, so that they can start fresh and move on.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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7 Responses to "Bailing out Germany"

VIJI

Feb 21, 2012

MINI NEWS ,DEAR ASSAD..

(US BANKS 95% 'CDS')

Like 

k Narayan

Feb 21, 2012

Mr.Dossani,

the best choice for Greece is to threaten the eurozone members that they will go back to the Drachma and allow a default to happen. Thought there may be a temporary setback to Greece, the imminent fallout on Germany and others will be much more. Greece should then use the opportunity to devalue its Drachma and make the economy COMPETITIVE AND THEN ONLY GROWTH MAY HAPPEN. they have less to lose than Germany and others and then they can dictate their terms by threatening. sudden shock is much better than living a life on bread and water for the next decade. GROWTH WILL CERTAINLY NOT HAPPEN IN GREECE IF THEY STICK TO THE EURO.

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sunilkumar tejwani

Feb 20, 2012

faulty economic policies which encouraged people to splurge & rampant tax evasion (due to rampant corruption of high offices) in Greece has caused this problem. Greece is a well known defaulter since ages. It is like a parasite living by sucking blood of others since ages. (since the time of Alexander).
The solution lies in one thing: The Greek government should pass an ordinance to get it's taxes from tax evaders within a reasonable time frame or the tax evaders face death penalty. that apart, the retirement age should be set at 60.

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dipakji

Feb 20, 2012

please in hindi language

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Sonny Jacob

Feb 20, 2012

Bailing out Greece is more or less bailing out German banks using EU money. So Germany is doubly benefitted. After Greece, it may be the turn of Portugal. The cycle goes on and on and finally Germany will emerge mightier.

Like 

ajit potnis

Feb 20, 2012

somewhat like GOI bailout package for debt waivers to vidharba farmers ?

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S.R. Jagganmohan

Feb 20, 2012

Mr. Asad Dossani,

This is a lucid, concise snapshot of the Germany-Greece situation. The true picture. Thanks.

S.R. Jagganmohan

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