The European Union provides 110 billion to Greece. I read in the newspaper that if they don’t Greece may go bankrupt. Is this bad and if so for who?
Let’s assume that I owe 1000 euro and I can not pay the interest on the loan, in economic terms it is called that I default on the loan. What happens? A bank employee shows up at my door and takes my silverware. The bank determines the economic value, which is always far below the market value, because the reasoning goes, it has to be (monetized) sold quickly.
Exactly the same happens when countries can not pay the interest on their loans, in economic terms, they default on their loan. A bank employee shows up at George Papandreou’s door and takes Greece’s silverware (airports, electricity, water, public transportation). The bank determines the economic value, which is always far below the market value and sells it to private investors.
The difference? Where my silverware includes my television, computer, and bike, countries own money-making machines paid for by the public when they use it such as electricity, water, and public transportation.
Why is Greece not allowed to go bankrupt? The short answer: because Greece has nothing. Thanks to the privatization wave in the early nineties countries sold their public services, like water, electricity, communication companies. From a country that doesn’t really have anything you can’t get anything and the banks would lose a lot of money if Greece goes bankrupt. Now the European Union provided the money necessary for Greece to pay the interest on the loans to the banks.
