Talking about Greek Bonds

The government of Greece finds itself (fittingly, if you're into the whole mythology scene) trying to navigate between Scylla and Charybdis. Thus far, it has managed to avoid running aground, though nobody thinks it has reached the safety of broad and deep waters.

Spend at least a moment to send good thoughts to the suffering prime minister, Lucas Papademos. He has to negotiate with Europe on the one hand (and "Europe" means three distinct institutions -- the European Union, the central bank, and the IMF, collectively the "official creditors" or the Troika) and with his own country's ticked off unions on the other. In principle, there is a fourth party (though that rather ruins the mythic resonance) -- the class of private/unofficial owners of his country's sovereign debt. But, as Felix Salmon has aptly observed, the bondholders as represented by the International Institute of Finance, have demonstrated that they will "agree to pretty much anything," so they don't really count as a factor and we've got the resonance back.

Dealing with the aforesaid European institutions is tricky because it means, among much else, appealing to politicians who are accountable to a German electorate which believes that it has already lost quite enough money down the Greek sinkhole.

Der Spiegel recently quoted one important German politician putting the point in these terms, "There is no money for a standstill in reforms."

But by "reform" that politician -- Horst Seehofer -- means roughly austerity, a pull-back in social-welfare spending.

Yet Papademos' own constituents have already given him a very good indication of how much appetite they have for the sort of reform Seehofer has in mind.

Meanwhile, though, Sarkozy and Merkel seem to have made up their minds to help him through this difficult passage. This week they've developed a plan  that will steer the crucial funds, apparently they'll be coming from the European Financial Stability Facility, Europe's answer to America's TARP, into the hands of both the "official creditors" and to some (cooperating) private creditors without ever putting a single coin into the hands of any Greek officials at all.

This is unkind to delusions of sovereignty, but ... so is life.
The blogger who gives himself the wonderfully Bagehotian name "London Banker" has his own take on the matter. This is what he wrote Tuesday: "If I were a Greek politician, I could probably live with this deal. While it is humiliating to have the money held and distributed elsewhere, it is still money that forestalls an otherwise certain default. And Greece can always default later anyway, should that prove convenient ... The can is kicked down the road for another quarter, and the bankers can pay themselves their 2011 bonuses."