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Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

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Greek debt tragedy takes a breather – but is it now a Chimera?

On the face of it, the ECB as lender of last resort has staved off a Eurozone disaster. It did so by issuing a staggering 1 Trillion Euros credit (for three years at almost no interest) not to Greece but to the banks of Europe whose balance sheets were not too healthy – or would look sick if they took a big haircut on Greek bonds.

Now the banks that took these loans have felt able to subscribe to haircuts on sovereign and private Greek bond defaults except that the defaults are not what they are called; they are CDS’s. Swaps of devalued bonds for new bonds. So 1 Trillion and some smoke and mirrors and we have a solution, or do we?  This all depends on Greece actually fixing its structural deficit issues, its austerity programme and this allowing a 360 Billion Euro debt or 160% of GDP to come down to 120% of GDP in 8 years.

About 100Billion has been saved already by bond value write offs but Greece is heading for being a non economy. Its decline is a staggering 7% pa and 51% of its youth is unemployed and 20% of the rest also out of work. Its ability to trade out of trouble looks poor.

Many investors see the only route to saving Greece (and the Eurozone) as being a return to the drachma.

The move to jurisdiction over most of the outstanding bonds to UK from Greek law and the fact that most new debt is to the senior debt holders such as the European Central Bank and European Investment Bank who remain unwilling to add to their holding means that Greece is losing ‘wriggle room’.

Greece, the ECB and Germany have kicked the can down the road again – with the strategy being ‘hope’. Not much of a plan.

Italy and Spain may need further support but this is going to get harder and harder as more and more good money follows bad money into Greece. It is time to cut loose before too many people say ‘you have left it too late’. I am reminded of the chimera – a Greek creation too:” An individual who has received a transplant of genetically and immunologically different tissue or – A fanciful mental illusion or fabrication.”


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