Words ought to be a little wild, for they are the assault of thoughts on the unthinking
- J.M. Keynes

Wednesday, 28 November 2012

The European Gravy Train


The EU gravy train is on a slippery slope due to Greece on the tracks. After the interest rate concession so magnanimously granted to Greece, everyone thinks that they are entitled to the same. Expansión reports that Luis De Guindos informed parliament that Spain will pay an interest rate of lower than 1% for its bank bailout. This is exceedingly generous for loans with an average maturity of 12.5 years (according to the EFSF) because Germany currently funds itself at 1.47% for 11 years (Jan-24 bund) to say nothing of an SPV backed by dodgy guarantees which was unable to issue even3 year bonds (and where guarantors accounting for a third of the guarantee themselves need a bailout to say nothing of the exploding baguette scenario).
Most likely Mr De Guindos is in a parallel universe to the EU’s parallel universe. As the translated Expansión article states (emphasis mine on the Freudian translation) “In June, when it announced the ransom demand for banking, Brussels said that this loan would have an interest of between 3% and 4%.” The parallel universe explanation fits best given that an interest rate below cost of funding would be a fiscal transfer which is illegal.
A little further west, his counterpart in Lisbon told his parliament that Portugal (and Ireland) will benefit from conditions offered to Greece. Quite ironical after all the chants of ‘we are not Greece’ and ‘Greece is a special case’. At least he is not in a parallel universe yet. His misplaced optimism stems from his belief in a 'principle of equal treatment' established in the European summit in July 2011. Somehow this principle is not mentioned in Barroso’s post-summit statement or in the statement by the heads of state. (As an aside, the part of the statement on Greece is quite interesting as it shows how EU is satisfying Einstein’s definition of insanity). The only sentence of peripheral relevance is “The EFSF lending rates and maturities we agreed upon for Greece will be applied also for Portugal and Ireland.” From this to assume that any and all Greek concessions made in future will also apply equally is a willing suspension of rationality.    
At least the Irish are more realistic as per the Department of Finance spokesman quoted in Irish Independent “Last night was about Greece, not Ireland and there was no discussion on extending the conditions or concessions agreed for Greece to Ireland.” Still they are also looking for concessions from the gravy train. If someone deserves a break it is the Irish since they have the greatest chance of coming out of their self-inflicted pain but unfortunately Europe doesn’t work that way. And that is why the gravy train cannot to see the light since they have constructed a never ending tunnel for themselves.

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