great algorhythm, great plan, what it means to you...

Using loans to underwrite loans is a bad policy in general. It is similar to using your VISA card to borrow cash for your mortgage payment. Governments have been doing this as a regular practice since the Reagan years. They have had no choice as the rules set back in the eighties make it cheaper to borrow money than to print your own. Imagine you are a government issuing bonds and with the money from them paying off past loans in the hopes that economic growth will offset the net loss in interest and allow you to dig your way out of the debt hole. The only other option throughout the entire decade of the 90s was to devalue your own currency to help balance the books. Canadians know exactly what this means with their 85 cent dollar. Funny how it is cheaper to shop south of the border regardless of the weaker currency.
Ever realy wonder about that. How is it possible with a weaker currency that you still get more for your buck even after taking a beating on exchange? I don't know exactly how that mechanism works but I do know that it helps you sell bonds and guarantee a higher rate of return. Greek bonds of the pre-euro era guarantee a return of 5-8%, much much higher than any other European Union member bond of the same era. Investors bought these up like candy and in 2001 the Greek drachma locked in at 340 drachmas to the euro, or 410 drachmas to the US dollar, forever. We good citizens took all our cash to the bank and were issued new funny looking bank notes in return for our old ones. The euro had arrived and the drachma was no more. Or was it? Bond holders got to cash in eight years later, 2009, and not only get a high return but also cash in on the higher euro by exchanging the bonds at the '01 fixed rate inflating their worth an extra 45% against the dollar. Like shopping south of the border in those brief periods when the loonie is suddenly worth a buck ten american. A landfall for sure.
The Greek government can no longer devalue its currency to offset this loss. But it can issue new bonds at a lower interest. Euribor is the interest rate of the central European bank, Budensbank in reality, and Greece was well within its rights to buy back its '01 bonds of 5-8% returns at the new rate of Euribor plus 1 point or 2.2%. Can you imagine remortgaging your home and dropping 3-5 percentage points off your loan? It would save you over 50% or one half of your payment. A good deal.
Well what's good for the goose is good for the gander eh? Sure unless the goose decides to snap it away dude. The European north that has so largely invested in the south and then spent the difference investing elsewhere was not about to stop chewing the fat. Euribor is great unless of course you lose your credit rating and then nobody will buy your bonds. This is the equivallent of being trapped in your old mortgage at a higher rate because no bank will issue a new loan. It is the oldest mechanism of keeping the poor poor and making the rich richer. Someone who doesn't realy need a loan gets a much cheaper rate from the bank than someone who is desperate to borrow. Only makes sense eh?
So what can the meek do in order to inherit the Earth, eh?
Alexander the Great plan has the answers...