Europe Sovereign Debt Crisis: Who Owes What to Whom

If you're as confused of the European sovereign debt crisis as the rest of us, this link is NOT going to help, but it sure will entertain you to see how these countries all owe each other.

Why can't them just cancel each other's debt? Link

Previously on Neatorama: European Sovereign Debt Crisis Explained with LEGO


Newest 3
Newest 3 Comments

"Why can't they just cancel each other's debts?"

1) The countries don't necessarily owe each other, but rather people in other countries. If I had French bonds and Pierre had US Treasuries, who would be the entities involved in a cancel?

2) The terms of the debts aren't necessarily the same. If I've got an IOU from Pierre saying he'll pay the holder $100 when he gets his paycheck on Friday, and he holds an IOU from me promising $100 after my paycheck comes in on Monday, cancelling the debts means I can't spend the money I expected to over the weekend (lucky Pierre!)

Even if the maturity dates are the same, interest rates can differ. If I agree to pay Pierre $10 a week interest and a balloon payment of $10000 at the end of the year (5.2% interest), and Pierre agreed to pay me $12.50 a week interest and a balloon payment of $10000 at the end of the year (6.5%), "cancelling the debts" would cost me an income stream of $2.50/week.
Abusive comment hidden. (Show it anyway.)
Commenting is closed.





Check out Twaggies' first animated clip:

Grammar Nazi's Rock? Twaggies by twaggies
Email This Post to a Friend
"Europe Sovereign Debt Crisis: Who Owes What to Whom"

Separate multiple emails with a comma. Limit 5.

 

Success! Your email has been sent!

close window