The first ignored fact is that net present value (NPV) is the only fair way to value bonds. The idea and the calculations are familiar to those who work in finance. For anyone else, it is enough to know that the lower the interest rate on a bond, the lower the true value.
When non-Greek politicians proclaim that they will never accept any reduction in the value of the Greek debt they hold, they aren’t telling the truth: they already have accepted a substantial write-off of the NPV, and they are mostly willing to accept more. Insistence on the sanctity of the principal amount may make domestic political sense in Germany or France – just as Greek voters loved the apparently now abandoned insistence on a reduction of that value. But both sides are promoting a false economics. (...)
The second fiction is that since the crisis, Greece’s creditors have provided the country with massive amounts of money. True, the raw numbers sound large. The Macropolis consultancy calculates that the total funding between 2010 and 2014 came to 254 billion euros, or about a quarter of the cumulative GDP over the five-year period.
But the vast majority of the loan money was given right back to the creditors as interest payments or loan repayments and some went to support Greek banks, keeping them from defaulting on their European obligations.
Thursday, February 05, 2015
Publicada por Miguel Madeira em 14:28