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Berlin Mulls Haircut Plan For Insolvent Emu States

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http://uk.reuters.com/article/idUKTRE66916H20100710

The German government has drafted a provisional plan that would force creditors to accept a discount on sovereign debt issued by insolvent euro zone member states, a magazine reported on Saturday.

The plan to perform "haircuts" on government debt is part of Chancellor Angela Merkel's stated intention to craft a framework for carrying out insolvency proceedings for euro states which can no longer meet their obligations.

German weekly Der Spiegel said Finance Minister Wolfgang Schaeuble had described the objective by quoting from a working document that government experts had drafted:

"Whenever a company becomes insolvent, creditors have to give up some of their claims, and this is how it should be in insolvency proceedings for states too." A Finance Ministry spokesman said it did not want to comment on what he described as "intermediate steps."

Germany holds the biggest European stake in a 750 billion euro (629.3 billion pounds) safety net created for the euro bloc at a time when the government is planning its own austerity measures, fuelling popular opposition to bailing out economies such as Greece.

The plan stated that the "private sector should be included in the process so that tax payers do not have to shoulder the financial burden alone," the magazine said.

In return for agreeing to a debt haircut, creditors would have the rest of their investment guaranteed, the report said, adding that the International Monetary Fund (IMF) should be involved in the restructuring process from the start.

How can you guarantee the insolvent?

Looks like they are trying to engineer a default without it being called a default.

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negotiated default as some posters

(not me) have been saying will be the way forward. Like to see how the private sector will be involved? Wont be good for share prices

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How can you guarantee the insolvent

You create a supranational bond. Swap it with the national bonds. Forever tax the nations concerned. You as supranational body take on the risk. You show a clean face to people who hold your bonds.

It's coming I tells'ya.

Edited by Alan B'Stard MP

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negotiated default as some posters

(not me) have been saying will be the way forward. Like to see how the private sector will be involved? Wont be good for share prices

Won't be good for banks is the problem - pretty much all major Euroland banks will become bankrupt if this path is followed (though I don't personally see any alternative path), so the taxpayer will end up on the hook at the end of the day.

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Won't be good for banks is the problem - pretty much all major Euroland banks will become bankrupt if this path is followed (though I don't personally see any alternative path), so the taxpayer will end up on the hook at the end of the day.

if they had to cash in their assets, they be found to be bankrupt already.

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Won't be good for banks is the problem - pretty much all major Euroland banks will become bankrupt if this path is followed (though I don't personally see any alternative path), so the taxpayer will end up on the hook at the end of the day.

Probably not, which is why I suspect they're looking at it. A orderly haircut of 20% across all PIGS debt would be painful for banks and insurance companies but I don't think it would be life threatening. An uncontrolled default, leaving the bonds worthless for who knows how long - possibly forever - would be far worse.

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Probably not, which is why I suspect they're looking at it. A orderly haircut of 20% across all PIGS debt would be painful for banks and insurance companies but I don't think it would be life threatening. An uncontrolled default, leaving the bonds worthless for who knows how long - possibly forever - would be far worse.

frack the banks....what about the lenders.....the pension funds..

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frack the banks....what about the lenders.....the pension funds..

Same issue as for banks and insurance companies - it's better for them to take a defined orderly haircut than to end up immediately insolvent.

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Probably not, which is why I suspect they're looking at it. A orderly haircut of 20% across all PIGS debt would be painful for banks and insurance companies but I don't think it would be life threatening. An uncontrolled default, leaving the bonds worthless for who knows how long - possibly forever - would be far worse.

So you think 20% off total Greek debt will become sustainable?

Can the Greek economy support that level of debt, anyone got time for some quick back of a fag packet calculations?

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Technically, if a state goes but, shouldn't all it's assets be sold to pay the debts?

All those government building, hospitals, schools, road.

The ability to tax the population is also an asset.

Strangely though, people aren't talking about state bankruptcy, they are merely talking about fraud... where the state defaults on it's debts but keeps all it's assets.

In reality, everything should be sold off... even territory.

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So you think 20% off total Greek debt will become sustainable?

Can the Greek economy support that level of debt, anyone got time for some quick back of a fag packet calculations?

Yep,

Fcked minus 20% = still fcked

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So you think 20% off total Greek debt will become sustainable?

Can the Greek economy support that level of debt, anyone got time for some quick back of a fag packet calculations?

I think it depends on the size of their deficit in a year or so's time. If they've closed it as much as they're projecting then, yes, somewhere between 10 & 30 percent might be enough to let them survive. I can't see the Krauts being prepared to guarantee any of their existing debt at all if they thought there wasn't some chance of saving the Euro (and all those German and French banks that will explode if Greece goes down).

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I think it depends on the size of their deficit in a year or so's time. If they've closed it as much as they're projecting then, yes, somewhere between 10 & 30 percent might be enough to let them survive. I can't see the Krauts being prepared to guarantee any of their existing debt at all if they thought there wasn't some chance of saving the Euro (and all those German and French banks that will explode if Greece goes down).

I can only see it being remotely sustainable if they get the economy moving. Considering the state of the global economy solving Greece's problems appear to be impossible.

The Euro is about vanity, ego will destroy the Euro.

A 20% hit on Greek debt could trigger other problems, how much would the Spanish like off their debts?

Perhaps a 20% hit on UK debt as well?

I think this idea opens up Pandora's box. If Greece was on it's own this potentially could work.

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Technically, if a state goes but, shouldn't all it's assets be sold to pay the debts?

All those government building, hospitals, schools, road.

The ability to tax the population is also an asset.

Strangely though, people aren't talking about state bankruptcy, they are merely talking about fraud... where the state defaults on it's debts but keeps all it's assets.

In reality, everything should be sold off... even territory.

secured, these gilts, are they?

no, only in that they are backed by taxation on a population

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In reality, everything should be sold off... even territory.

...and the children. It's tough to find little mites in the UK who are willing to go up a chimney for 6d per day. I blame the welfare state!

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secured, these gilts, are they?

no, only in that they are backed by taxation on a population

That's simply why default and departure from EU is imminent, the optimum solution all round for Greece's people.

This should lead to a cull of the corrupted officials and their financing elite.

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I'm guessing the Euro 'Bank stress tests' is all about getting the banks to raise sufficient capital before they apply an 'orderly default' or 'haircut'.

Of course, said haircut will be too small if their prior actions are anything to go by.

+1

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I thought the whole Euro bail out involved a "gentleman's agreement" that French and German (private sector) banks wouldn't dump Greek and Spanish bonds into the system. Unless this plan is bull****, I see this unwinding very quickly next week. The only thing propping up those bonds is the promise from the ECB. Yields will go to the moon as soon as there is some uncertainty as to the promise.

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secured, these gilts, are they?

no, only in that they are backed by taxation on a population

I think you misunderstand what secured debts are and what bankruptcy is.

Secured debts are where specific debts are secured against specific assets... if the debt is not repaid the assets can be seized. State debts are not secured.

Bankruptcy is where someone unable to pay their debts surrenders all their assets, and the assets are sold to repay the debts, with any outstanding debt after that being written off after a reasonable period of time.

In order for a state to go "bankrupt" it would need to surrender all it's assets so they could be sold to repay it debts.

What people describe as "state bankruptcy" is little more than fraud, because a state declares it cannot repay it debts, but then keeps all it's assets.

It's the equivalent of having your cake and eating it.

It the debts are "backed by taxation on the population" then taxation has to rise or other spending of said taxation has to drop, so the debts can be repaid. Simply saying "weren't not paying as it would be unpleasant" is little more than fraud.

The part where it gets unpleasant is when people start asking who the money was borrowed from. Lots of stated defaulting and refusing to pay up will result in every pension fund on earth being left bankrupt.

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I'm guessing the Euro 'Bank stress tests' is all about getting the banks to raise sufficient capital before they apply an 'orderly default' or 'haircut'.

Of course, said haircut will be too small if their prior actions are anything to go by.

So they banks need to raise the money before the action is taken.

Will they be selling shares to get the capital?

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  • 144 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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