Monday, May 9, 2011

Empty Threats; EU To Lower Rates for Ireland and Provide New Bailout to Greece

We knew that the abilouts provided to Greece and Ireland (and now Portugal) would cause deep recessions, and they would simply not be repaid. Today, Reuters reports that the European Union is looking to lower interest rates on the loans to Greece and Ireland, and, in addition, is working on a second bailout for Athens "in a chaotic effort to prevent a disorderly debt restructuring".

EU Economic and Monetary Affairs Commissioner Olli Rehn said that "The Commission is clearly in favor of a rate cut,"  "The Commission is against debt restructuring.".  The executive European Commission also said that it hoped to see a decision within weeks on reducing the rate charged to Ireland to make Dublin's debt "more sustainable".

However, it's not all rosy, well, nothing is about these bailouts, but these initiatives have been blocked by Germany and France, which want Ireland to drop its veto on harmonizing the corporate tax base in Europe, i.e, raise corporate taxes in Ireland. This would be to the obvious benefit of Germany.

What a mess. But since large parts of the debt are from German banks, it is really not clear whether these are empty threats.

"However, German Finance Ministry spokesman Martin Kotthaus told a news conference: "There is no discussion at the moment about extending the payment schedule or lowering the interest rates for Greece.

The calls for lower interest rates came after a select group of top euro zone policymakers held not-so-secret talks in Luxembourg on Friday evening on how to stem the currency bloc's deepening sovereign debt crisis".

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