Finnish demands for collateral from Greece under threat

[Metahive]

Gold? Really? Gold's only good for speculants and their gambling schemes, not for nation states. Then they might as well buy greek treasury bonds, they are as "safe".

[Norseman]

You know the Greeks have tons of very lovely holiday islands...

[Metahive]

That's actually one of the few ways to acquire a collateral of actual value from Greece. It would however run roughshod over Greece's soverignty and basically reduce its status to that of a half-colony or colony. Why people who otherwise scorn the EU for the slightest encroachment upon a nation's independence would be OK with such steps remains a mystery.

[mr friendly guy]

Well, what assets does the Greek government own? Land? Buildings?

112 tonnes of gold (current value approx $7 billion), more than sufficient to cover the Finnish contribution. Of course, not nearly enough to provide a useful margin on the whole bailout...

You know, the Greek could sell that gold?

The only way I think this could be more beneficial as collateral (as opposed to outright selling it and not relying on Finland to contribute to the bailout), is if 1. Finland gets the gold if Greece defaults rather than the equivalent value of Finland's contribution and 2. Finland expects gold to go up in price sometime in the future (hence even if Greece defaults Finland gets more than it contributed).

I suggest putting Crete up as collateral. Maybe Rhodes and Lesbos too.

IIRC Greece did consider selling some luxury islands. But then who would want to have them if they were used as collateral? A billionaire might want it as a private retreat, but what about nation states? What would another EU nation want with one of these islands. Will it generate income to merit the cost in a reasonable time frame? What about another nation state flushed with cash, like China? Are they going to use it for a military base or something?

If anyone knows why a nation would want some of these islands, I want to know, because I just can't see it being useful for those nations with sufficient cash to help out Greece.

[Starglider]

And how are you going to enforce that collateral, Starglider? And do you realize what will happen next? Every nation will scream for a collateral and that will scuttle the bailout.

No it won't. Every nation except France and Germany could pull out, and those two would still do the bailout on their own. They are that obsessed with 'saving the euro'. As such the True Finns are correct in at least one thing; the marginal benefit to Finland of participating in this bailout is zero (and the cost is significant).

Of course as with the previous rounds, this bailout will fix nothing and solve nothing. Next time even France and Germany will find it politically difficult to hand yet more money to Greece.

Gold? Really? Gold's only good for speculants and their gambling schemes, not for nation states. Then they might as well buy greek treasury bonds, they are as "safe".

You have absolutely no understanding of international finance. Cash FX reserves are just as volatile.

The only way I think this could be more beneficial as collateral (as opposed to outright selling it and not relying on Finland to contribute to the bailout),

Collateral does not have to have the full loan value; rather it has to have sufficient value to cover the risk premium for the loan. In other words the value of the collateral should be at or a little better than the cost of CDS protection on the loan. Since the market is still pricing in a good chance of Greece repaying in full (e.g. adoption of Eurobonds), this will in fact raise considerably more money than a direct sale. Assuming of course Greece hasn't already secretly pledged the assets to someone else.

[Metahive]

You have absolutely no understanding of international finance. Cash FX reserves are just as volatile.

O my, really? What a shocking revelation.

Hint, scare quotes around the word "safe". Also, isn't that an admission that gold makes indeed a worthless/ potentially dangerous collateral? Thanks for agreeing with me then.

[Thanas]

And how are you going to enforce that collateral, Starglider? And do you realize what will happen next? Every nation will scream for a collateral and that will scuttle the bailout.

No it won't. Every nation except France and Germany could pull out, and those two would still do the bailout on their own. They are that obsessed with 'saving the euro'. As such the True Finns are correct in at least one thing; the marginal benefit to Finland of participating in this bailout is zero (and the cost is significant).

So in essence you want Germany and France to pay for the entire bailout? Because that is what is going to happen. Did you even consider that? The EU is not simply a "let's decide to do things on our own" union.

Your idea would throw the EU back at least twenty years.

[K. A. Pital]

It would be fair if France paid 90% of the bailout - it was their banks who speculated with Greek, Irish etc. debt and got bailed out via sovereign bailouts again. Sickening as it is. But of course, if you actually let France as a nation-state answer for its bankers actions, the burden will fall on French workers, and Sarkozy, Europe's Putin-wannabe, will institute another round of onslaught on social guarantees and welfare to bail out French bankers from the pockets of France's citizens.

[Lord Sander]

At this point I say we northern countries with actually working economies should just pull out of the EU and form a new bloc. Unfortunately that's just about impossible now, being so entangled in the EU.

[J]

Isn't collateral the entire idea that makes loaning to a risky recipient not hysterically stupid? I'm...really not following why the EU is viewing that as a calamity in this case.

What is supposed to serve as collateral? If all EU nations demand one, then what is going to serve as collateral? Do German Agents go around and plant stickers on the chair of the PM of Greece?

That's a bit of a problem isn't it? And there are no easy solutions nor answers when it involves loans between sovereign nations which are part of an economic union. There's two issues in play here; what's going to serve as the collateral and how is that collateral to be put up or secured without infringing upon national sovereignty or the thousands of pages of EU treaties? And also, what is the EU going to do if Greece defaults anyway and decides to leave the EU and flip them the finger?

[Xisiqomelir]

Gold? Really? Gold's only good for speculants and their gambling schemes, not for nation states. Then they might as well buy greek treasury bonds, they are as "safe".

You'd better tell that to the world's nation states. They seem to have a deep affinity for piling the stuff up by the ton in vaults.

[Metahive]

Never said nation states always act rationally, did I? Unless you plan to sell it, Gold has little practical use. That's why the majority of it is used for trinkets and jewelry after all. Hoarding it however has no use whatsoever other than driving its price up. The gold standard was dropped years ago after all.

[Thanas]

Isn't collateral the entire idea that makes loaning to a risky recipient not hysterically stupid? I'm...really not following why the EU is viewing that as a calamity in this case.

What is supposed to serve as collateral? If all EU nations demand one, then what is going to serve as collateral? Do German Agents go around and plant stickers on the chair of the PM of Greece?

That's a bit of a problem isn't it? And there are no easy solutions nor answers when it involves loans between sovereign nations which are part of an economic union. There's two issues in play here; what's going to serve as the collateral and how is that collateral to be put up or secured without infringing upon national sovereignty or the thousands of pages of EU treaties?

Yeah, this is a huge problem. And even if you get a collateral, like, say, a 30 year old leaking powerplant or so, then what are you going to do with it if (or when) Greece defaults anyway? Are you going to dismantle and ship it somewhere else?

Really, the only think Greece has that might serve as collateral is gold and cultural treasures. The first is too little and you won't get the second out of Greece without massive protests, armed intervention and violating several UN conventions on cultural treasures.

And also, what is the EU going to do if Greece defaults anyway and decides to leave the EU and flip them the finger?

Whine, moan and pretty much make sure Greece is turning into a third - world country.

[Fingolfin_Noldor]

Whine, moan and pretty much make sure Greece is turning into a third - world country.

Aren't they already pretty close to that as it is?

[Thanas]

Whine, moan and pretty much make sure Greece is turning into a third - world country.

Aren't they already pretty close to that as it is?

What makes you believe that?

[Simon_Jester]

Never said nation states always act rationally, did I? Unless you plan to sell it, Gold has little practical use. That's why the majority of it is used for trinkets and jewelry after all. Hoarding it however has no use whatsoever other than driving its price up. The gold standard was dropped years ago after all.

Whether it's worthless as an industrial metal or not (hint: don't be so sure unless you can present studies), people continue to value it. The owner of gold can be reasonably confident that people will continue to value it, in ways they would not value a pile of rocks or some other durable commodity.

So if you have a pile of gold, you can sell it off for something even after a lot of economic chaos. You can't count on being able to sell a pile of Greek treasury bonds, because the asking price of those could actually decline to zero.

This is not to say the collateral thing is smart. I don't feel that I'm in a good position to say whether it is or not.

[aerius]

Unless you plan to sell it, Gold has little practical use. That's why the majority of it is used for trinkets and jewelry after all.

Did you just type your post on a computer? Open it up someday and see how many things inside are made of or plated with gold. It's the same with all modern cellphones, iPads, and other miniaturized electronics. While it's true that most gold goes into jewelry, it's far from being a useless metal.