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Greek debt deal is only designed to buy time...

ONE MIGHT call it a clever exercise in strategic misdirection. But the deal the Greeks have signed with the EU is all about giving bankers time, writes Dan Denning in his Daily Reckoning Australia.

Time for what? Time to prepare their balance sheets for an inevitable Greek default of course!

The moral of the Greek story is that the accumulation of large debts robs you of your self-determination. This is true for individuals. It's true for nations. The more you owe, the less free you are.

But let's leave the philosophy of debt aside for a second. Everybody is conning everybody in Greece. The private sector is angling to foist off its Greek bonds on European central banks. That would leave tax payers with the ultimate bill for Greek default. The French and German banks with exposure to Greek debt now have a little covering fire to beat their strategic retreat.

As for the Greeks, they have signed their sovereignty away to Europe. "The Greeks' sovereignty will be massively constrained," EU strongman Jean-Claude Juncker told the German magazine Focus. He means the Greeks will have to do what they're told in order to get the final $15 billion from the first bailout and any second bailout.

"Do what you're told." That's what it comes down to as the globalization of finance wears down the Welfare State. The Greeks have gone along with it for now. You wonder if that will last.

Give them some credit, though. They've managed to get the European Union (EU) and the International Monetary Fund (IMF) to open their wallets one more time. And even the EU realizes Greece's finances are on shaky ground. If Greek economic growth is just a smidgen below what's modeled in the plan, its debt will grow even more.

The UK's Guardian newspaper reports:

"The European commission conceded on Saturday, after the two-hour Euro group teleconference agreed the fifth tranche payout, that any plan to cut Greece's debt of 160% of economic output would be at risk of being derailed by internal unrest or external economic conditions. Growth just one percentage point below expectations, it said, would push Greece's debt to 170% of GDP, and rising, past 2020."

The EU's mechanism for keeping the private sector interested in Greek debt is so Byzantine and complex that it defies an easy description. It involves Greek debt holders rolling over a portion of their debt, a special purpose vehicle (SPV) and a lot of coupons. The simple explanation is probably the best one: it's an elaborate stalling maneuver designed to give banks time to prepare for Greece's inevitable default.

The financial markets haven't seen that yet. It means you'll probably see a gentle rally in stock prices as people scratch their head trying to figure out what's going on. By the time they figure it out, it will be too late.

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Best-selling author of The Bull Hunter (Wiley & Sons) and formerly analyzing equities and publishing investment ideas from Baltimore, Paris, London and then Melbourne, Dan Denning is now co-author of The Bill Bonner Letter from Bonner & Partners.

See our full archive of Dan Denning articles

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