Following Robert Peston’s comparison of what interest rate the Italian government is charged for borrowing money compared to what his own household would be charged (Italy turns out to be more creditworthy than the Pestons, but only just), I thought I would take a look to see how I compare.
Take that, then, Cyprus, Greece, Hungary, Ireland, Portugal, Romania and Spain. You are the seven EU members who are being charged a higher interest rate to borrow money long-term than I would be.
* Mark Pack is Party President and is the editor of Liberal Democrat Newswire.
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5 Comments
You’re onto a winner. What you do is this
> borrow a few trillion at the low rate yoiu are charged
> lend it to those seven countries at a higher rate, but one that is lower than they would get from the market
> use their repayments to repay your debt
> keep the profits
You could even make a bit extra by lending to the Pestons!
Of course there are one or two risks involved, but hey, who cares, these opportunities don’t come every day!
Declare the Republic of Mark Pack immediately. And apply for EU and Euro membership?
Hmm. If they only wanted to borrow small sums, they would be able to do so cheaply.
I think its already been done – didn’t an American buy up a bankrupt Greek bank – then qualify for a bailout and he then made half a billion euros in the transaction.
His headline was “Who would you lend to – Italy or Peston?” pointing out that he had to pay 5.9% to borrow money while Italy could borrow at 5.3%. My first thought is that it is disappointing that an economics expert has to pay as much as 5.9% – maybe his lender regards journalists as rogues and vagabonds.
But the substantial point is why does an ordinary respectable citizen have to pay so much more than a dodgy country. Here are a few thoughts:
The first is the old joke that if you owe £10 000 and can’t pay, you’re in trouble, but if you owe £100 000 000 and can’t pay, your lender’s in trouble. Italy is one of the big four in the EU and a default there would damage a lot of other countries and banks. Old debts as well as new debts would go unpaid. Damage would be both directly by bad debts and indirectly by reduced trade and economic activity. In the worst case, putting the Peston family on the street, would be a small matter for a bank; putting the government and people of Italy on the street is another matter.
Secondly, countries and banks are insiders rather than outsiders. Ordinary creditworthy folk only think about borrowing a few times a year – probably only monthly at the most. Countries and banks have people thinking about the mechanisms and costs of borrowing and lending full time. Those who lend to them know this, and this keeps the rates down.
Thirdly, following on from this, most of us and the Peston family are operating in the retail credit market, where there is some justification for extra marginal charges. But, most of all, the rates are higher because that’s what the market will bear. Also, it’s fom us multitude of mugs that the lenders are hoping to get their profits and to defray the costs of bad debts and lending to people who won’t pay the higher rates.
Which brings us to the question of Greece. Is Greece getting such a rough ride because it is particularly badly run? It is small enough that the wider community has the choice of squeezing it or subsidising it. Is it being taught a lesson “pour encourager les autres” ? And where does Spain ( nearer in population to Italy than to Greece) fit into this?