Defies Credulity Eupdate

The last big fix to the European debt crisis, quietly unraveling since its announcement on July 21, is loudly imploding over collateral.  Turns out that Finland, representing less than 2% of the Eurozone package and 37.876% of the political noise about the package, was promised Euro 500 million in cash collateral for its participation. The side deal makes little sense as an incentive to repay for Greece, or as a source of repayment for Finland. In a world where Greece is willing to default on another European state, Euro 500 million is the least of anyone's worries--the Euro is collapsing, Spain and Italy are going down, bank runs are rampant, etc. The primary purpose of the collateral trick must be political -- to assure Finnish voters that they are not in fact bailing out Greece.

Other European governments must have known, but were willing to let it go as chump change for the sake of appearing united, so long as their voters did not find out. But since the deal was all about Finnish political theater, it had to be publicized, which made all the others look like chumps, forcing them to demand collateral too ... demonstrating the very sort of disunity Europe had sought to avoid by buying off Finland, now freaking out Moody's. All this is quite apart from the negative pledge, CDS, and IMF preferred creditor status headaches.

But wait, a brilliant fix is in the works from the folks who brought you all the brilliant fixes that came before. Forget cash collateral, the EU will take Greek real estate! Picture EU enforcers marching into Greece to seize real estate and sell it on the courthouse steps (to whom???). Picture the Greek population placidly going along with it, as in the good old days of gunboat diplomacy and seizing customs houses ... (Greek title worries are quite beside the point in this big picture.) No doubt the idea looked attractive precisely because it was so utterly implausible--replace cash collateral, which hurts Greek liquidity, with collateral that no one would ever seize. No harm, no foul. 

No voters are that stupid.

(Don't miss Stephen's post, casting Finland as the perennial restructuring holdout. Sovereign bankruptcy, anyone?)