How Greece's second bailout will affect the rest of the world

Feb 22, 2012

Greece secured its second economic bailout Tuesday, but what does that mean for everyone else?

Ziad Abdelnour discussed if the bailout will actually help Greece on the road to economic recovery, how the bailout means for Europe, if the bailout will affect U.S. markets and more.

Ok folks...ready when you are.

Will the citizens of the U.S. actually feel any effects from another Greece bailout?

Of course they will; especially US banks.... but mostly European banks...The 'bailout' of Greece is really a bailout of eurozone banks.

How do you think Greece's second bailout will affect Portugal, Ireland, Italy and Spain?

The Greek economy is small with not much impact on Europe or the world. Greece's default though could have a domino effect, influencing European and even American banks.

Moreover, if Greece defaulted there is fear that other European countries including Spain, Italy and Ireland could go the same way.

The bailout and austerity measures (if implemented) would save Greece and send a signal around the world that the crisis is controlled. It seems that the world economy is slowly rebounding. The solution of Greece's economic problem could help the process. 

So is Greece expected to pay back all these billions? And what if they need a 3rd bailout?

Greece is not making progress on this basis. All it is doing is incurring new debt to retire old debt .

Do you agree with Gordon Brown that the answer to austerity's failure is not more austerity and that growth oriented policies need to be pushed?

Totally agree...

To avoid future defaults, the Greek economy has to grow fast. Economic growth must come from exports. The question is whether Greece is in a position to substantially expand its exports. This will require the economy to be competitive; hence the cut in the minimum wage.

Why do elite media and finance ministers continue to characterize this austerity action as "Greece's second bailout?" This isn't a bailout of Greece -- it's a bailout of INVESTORS in Greek bonds, mostly German and American banks that helped Greece hide its fiscal problems during the country's application to join the Euro community. BANKS are being bailed out, not Greece!

Totally agree...

After all this is done, private creditors to Greece will have been paid by European public money stumped up by the taxpayers of other European countries. The banks have been bailed out again. Without help they would have got nothing. They now get 50pc of their worthless holdings and the subsidy comes from the taxpayer.

Some financial experts say that the Greek debt deal "will preserve the financial stability of Greece". I am afraid it won’t

So Why would Europe's financial and political elites insist the deal is sound when they know it's not? The reason is because the 'bailout' of Greece is really a bailout of eurozone banks.

You don't make a balance sheet with too much debt better by adding more debt; you fix it with less debt.

What will likely happen to Greek employees and residents during this long period of continued financial crisis?

They are going to have to find new ways of reinventing themselves, upgrading their skills and become more entrepreneurial.

This has got to start not just in Greece but worldwide

Counting on government to keep helping you, anywhere in the world, is a losing proposition

Governments jobs is not to create jobs...It is the private sector

In my opinion, tgovernments jobs worldwide should be to create an environment conducive to wealth creation...not job creation

How a country like Greece survive even with second bailout, with no growth because of the austerity is not money to spend?

By starting to work real hard, become ultra competitive, avoid not paying taxes and behave like a true member of the European Union instead of breaking all laws and disregarding law and order

How much of this current near collapse of the Greek economy is the result of the showpiece 2004 Athens Olympics? I remember hearing how much was spent then--and that much of it was borrowed. On a related question, I have read that the Italian government has told the 2020 Rome Olympic committee not to expect any funding for 2020 costs, and that as a result, Rome is no longer competing. Is the cost of hosting the Olympics becoming too much for anyone and how long will the current Olympic model survive?

Don't believe it has anything to do with any  Olympics.  Besides, cost of Olympics is minuscule compared to the kind of mounting debt we are talking about.

What is the expected end plan for getting Greece out of its economic mess? It appears the strategy is to extend its economic misery to pay out creditors, but where is the means to pull Greece out of its condition of continuous debt?

I don't think any of the European leaders really know where this is headed yet...

Greece will receive $171.9 billion from the European Union (EU), $17 billion from the International Monetary Fund and the rest from the European Central Bank.

In addition, Greece will exchange about $264 billion of its debt held by private creditors with new bonds with 53.5 percent less value.

After the penal interest Greece has paid on these bonds already, we still see an insolvent country paying bondholders 50pc of face value when they should be getting nothing.

So Greece gets €100bn written off, but borrows €130bn in order to achieve this, so it is still borrowing more making its overall debt not better but worse in absolute terms.

To avoid future defaults, the Greek economy has to grow fast. Economic growth must come from exports. The question is whether Greece is in a position to substantially expand its exports. This will require the economy to be competitive; hence the cut in the minimum wage.

Just FYI, Greece’s economy shrank 7 percent in the fourth quarter of last year and unemployment is 19 percent, a consequence of cuts in public wages and increased taxes inflicted during a downturn.

With less debt burden, the Greek economy could be prosperous, but only if the Greek government implements the austerity measures, if corruption is curtailed and if people agree to work harder for less money.....Highly unlikely in my personal opinion. So in my personal opinion we are going to be back to square one in a few years


You say, "In my opinion, governments jobs worldwide should be to create an environment conducive to wealth creation...not job creation." What could the Government of Greece do to create that environment? Is it doing it now?

Not doing it at all... and access to capital to Greek entrepreneurs is close to nil.

It is all about encouraging entrepreneurs and providing access to capital.

Do you think this second bailout is going to affect how other European countries going through their own debt issues will be dealt with in the near future? Is this going to set a precident?

I really hope not and wish we could all take a much closer look at the Iceland example

In the same week as the eyes of the EU are focused on Greece, Iceland -- a country which in 2008 suffered a monumental crash -- is now recovering strongly.

It has done exactly what economic mainstream thinking would advise. It dropped its currency by over 40pc to make itself more competitive and mainly to choke off unnecessary imports. It defaulted on its bank debt by simply telling the creditors that there was no cash and they could take equity in the banks if they wanted.

So it devalued and defaulted and, far from the markets punishing Iceland, the markets rewarded them. Iceland is now borrowing again, the economy is growing, inflation has fallen and there has been large-scale mortgage debt relief. Crucially, unemployment is now at 6pc and falling. And it is running at 6pc of GDP budget deficit, borrowing from abroad and at home to do so. Who says people won't lend? Of course they will, because the debt default means that the balance sheet is fixed.

The Icelanders took control of the situation and did things their way. They were rewarded. They didn't try to be 'best in class', but laid out things as they were to the creditors. The markets moved on.

I believe the way mortgage arrears are rising here and the way companies are going to the wall due to their debt burden, huge debt deals will have to be done here.

It's just a matter of when, not if. Greece shows us how not to do things. When it comes to debt, Iceland should be the roadmap.


Who are the primary holders of Greek debt? What are thoughts about claims from the faction of economists that people are overreacting to the amount of public debt as those holding the debt will likely be paid at some point?

Greece will receive $171.9 billion from the European Union (EU), $17 billion from the International Monetary Fund and the rest from the European Central Bank.

In addition, Greece will exchange about $264 billion of its debt held by private creditors with new bonds with 53.5 percent less value.

After the penal interest Greece has paid on these bonds already, we still see an insolvent country paying bondholders 50pc of face value when they should be getting nothing.

So Greece gets €100bn written off, but borrows €130bn in order to achieve this, so it is still borrowing more making its overall debt not better but worse in absolute terms.

Pardon my ignorance, but could you tell us a little about Greece for me and others: is it a socialist country? how does it differ from the U.S. regarding its economy and form of government? Thanks...

There is a difference between night and day between the Greek and US economies in every single respect you can imagine...Time to really start educating your good self about both

Way too long to explain in 2 words in here


From one of your responses, I glean that there is a huge underground, non-taxed, economy in Greece (as well as other countries) that is not necessarily criminal in nature. How do governments encourage trackable financial exchanges within their countries? Cash payment is the main method of avoiding tax.

Sorry but avoiding taxes for me is criminal and is not something to disregard

You don't build nations but cheating on your taxes

I am though for a much fairer tax system worldwide such as flat or fair tax that is fairer for all concerned

Roughly speaking, Greece's annual GDP is about the same as Maryland's or Atlanta's ($300 billion). So: why is Greece is so pivotal to the global economy?

As I said earlier, the Greek economy is small with not much impact on Europe or the world. Greece's default though could have a domino effect, influencing European and even American banks.

Check out Portugal's bond yields which are in the double digits. While everyone has been ringing their hands about Greece Porgual is slipping over the cliff. And sorry US taxpayers shouldnt have to bail EU countries out through the IMF ect. US needs to get out of the IMF which is worthless and let the socialist govts in the EU rot and default. Greece will never be on the right track with EU and the banks in charge. Default was and is the ebst answere for Greece.

In my opinion, US taxpayers should not bail out ANYONE....not even American institutions.

BAILOUTS in the long run do NOT work.

Read my upcoming Op-Ed about this topic or better my book "Economic Warfare".


But isn't Iceland's ability to recover directly tied to its control of its monetary system? It's not in the Eurozone. Greece and the other Eurozone countries seem locked in a dance of death at this point.

Unfortunately it is and this is the major issue finance ministers and others are facing every day.

Crony prime ministers have crony finance ministers - how did they get their jobs - political elite together with the bankers and pension fund mangers - arrange loan to Greece but the Greeks get very little of it. Who is benefiting? How do the Greeks benefit - the man in the street?

Read my book "Economic Warfare" It is all about money and power and how the rich got richer and orchestrated the biggest swindle in the world's history...and the circus is still going.

Do you see any chance that the concern of CDS on Greek sovereign debt will reignite the debate over whether to move CDS to exchanges? Some say that the net exposure on Greek sovereign CDS is low. But as best I can tell, that assumes no real counter-party risk. How can anyone be sure what is the real CDS exposure to Greek sovereign debt? I realize this assumes that taking a "voluntary" haircut is not a credit event. But what if a protection buyer sues for a payout and wins?

All options have to be open... We have no other choice

Ok folks gotta break now..Thanks for your questions

In This Chat
Ziad Abdelnour
Ziad K. Abdelnour (Author) is an international dealmaker, trader, and financier with over 25 years of experience in merchant banking, private equity, alternative investments, and physical commodities trading. Mr. Abdelnour is currently President & CEO of Blackhawk Partners,Inc., a private equity "family office" that focuses on originating, structuring and acting as equity investor in management-led buyouts, strategic minority equity investments, equity private placements, consolidations, buildups, and growth capital financings.

He serves on the board of TMax Capital, an investment management and specialty finance group. He also serves on the advisory board of DPG Investments, a recognized premier multi-strategy global merchant banking, alternative investment, management, and advisory firm and FlatWorld Capital, a global private equity investment firm. He is a regular panelist and speaker on private equity and venture capital topics at industry conferences nationwide.He is the founder and president of the United States Committee for a Free Lebanon (USCFL), founder and chairman of the Financial Policy Council, member of the Board of Governors of the Middle East Forum, and former president of the Arab Bankers Association of North America.

Read Abdelhour's book: Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics
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