The CEO of Deutshe Bank echoed today what many of us know but European officials and the ECB don’t want to admit as evidenced by the historic bailout plan. In an interview he said “I would doubt that Greece over time will be in a position to come up with the economic potential” to pay its debts. If Greece, Portugal and others can’t generate nominal GDP growth above its cost of funding, they enter a debt death spiral that can only be rescued by debt extinguishment thru restructuring which then lays the foundation for future growth. With another day of European stock weakness, global growth concerns, and capital requirement uncertainties in the banking system (due to both European authorities and the US Congress debate on Fin Reg) US$ 3 mo LIBOR rose to a fresh 9 month high, rising to .445%. Retail Sales, IP, Consumer Confidence and Business Inventories flood the wires this morning.

Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

2 Responses to “If you can’t grow, you can’t pay back what you owe”

  1. Abhishek says:

    The European Bazooka which led to a massive short covering rally on Monday has been proven a complete waste in just 5 days. Reports of political and social fissures within the European Union and more importantly the prospect of slow growth in the whole region due to fiscal cuts has led to the Euro falling even below the level of last week.This despite the raison de etre of the bailout being the “defence of the Euro”

  2. Marc P says:

    Please explain why growing is imperative as a strategy. I thought the general idea in finance was to not take on more debt than you can afford to repay. If a friend suggested that we take on a huge house debt hoping that our salaries would double, we know that is a risky course. The bank would say no if we proposed it. What counts is what you make, not what you hope to make. The problem with Greece and the CEO of Deutshe Bank appears not to be one of whether the Greece can grow its economy, but one of poor judgment in making unrealistic assumptions.

    If Greece cannot repay its bonds then the bondholders need to take a loss. It is madness to bail them out. Next time they will be more prudent in lending. Like not making rosy assumptions about future growth.