By BJ Bjornson
A couple of stories I came across yesterday that give me little hope that the Eurozone crisis is going to be resolved in anything approaching a reasonable manner.
The first is actually kind of positive, so long as you�re not heavily invested in European banks, the decision of the EU�s finance ministers to tell their banks to raise a lot of extra capital and write off a quite considerable chunk of Greece�s overwhelming debts.
EU finance ministers neared agreement Saturday on forcing banks to raise just over �100 billion to ensure they have enough cushion to weather further losses on their Greek bonds as well as market turmoil, a European official said.
The eurozone's 17 finance ministers have agreed that banks must accept substantially bigger losses on their Greek bonds, and a new report suggests that writedowns of up to 60 per cent may be necessary.
The report from Greece's international debt inspectors, which was discussed at the finance ministers' meeting Friday, says in order to keep a second international bailout of Greece to the �109 billion ($150 billion U.S.) level tentatively agreed upon in July, Greece's debt would have to be cut 60 per cent.
Even that would leave the country's debts at 110 per cent of economic output in 2020.
Not quite optimal, but with everyone worried about whether or not the banks can even absorb the losses for the stupid loans they made, it is at least a nod in the direction of having those who made the bad loans absorb the cost of their decisions should Greece go bankrupt.
Of course, any thoughts that the powers that be might be bowing to the inevitable and not continuing to look for ways to enrich themselves would be very much dashed by the second story, via LG&M:
German industry and politicians have attacked a proposed French warship deal with the near-bankrupt Greek government, according to the magazine Spiegel.
State-owned French naval shipyard DCNS is offering to deliver up to four new stealth frigates to the Greek Navy but defer the 300 million euro ($412 million) payments for five years and even allow the Greeks to hand the warships back, the German magazine reported Oct. 17. Under the deal, Greece will have the option of paying up after five years with a 100 million-euro discount, or even returning the warships to be used by the French Navy, the magazine says.
According to Spiegel, the rival German ThyssenKrupp group, which is also competing for the deal, has complained to the German government that the vessel purchase, in effect, will be co-financed by German taxpayers who are mainly footing the bill for restructuring Greece's huge national debts.
So while the French and German governments are leading the charge to force painful austerity measures on the Greek government over the quite fierce objections of the Greek people on one hand, they are working with their other hand to push unaffordable military toys on them. Whatever the sweet terms being offered for the purchase, I have little doubt that somebody will be making money off the deal.
Despite the nearly unprecedented mess the EU finds itself in thanks to the problems in the PIIGS, the leadership still seem to be treating things like a rigged game they can win. The crash is going to be ugly when it comes.