They don't like it up 'em!

On Tuesday, Nigel Farage savaged the Euro and used Greece as an example of how it is damaging economies because the European Central Bank (ECB) has to have one policy to fit every economy and that is a sheer impossibility. The video is below, it's 5 minutes long but it's worth watching:



After Nigel's speech he received a smug email from a smug Greek MEP:

From: VARVITSIOTIS Ioannis
Sent: 13 January 2009 15:57
To: MEP
Subject: Message by the Greek EPP-ED Delegation

Dear colleagues,

Following today's attempt by Mr Farage to attack the EURO through provocative statements on Greece's membership to the EMU -during the plenary debate on the 10th anniversary of the EURO-, the Greek EPP-ED Delegation (Nea Demokratia) would like to inform you that today's tender of government bonds yielded a total amount of 2,550 billion Euros at an average rate of 2,51%, well below the Euribor rate of reference. The final result covers more than 6 times the amount targeted by the Greek government.

This offers a tangible response to any Member seeking to establish the truth regarding the credibility of Greece's performance as a trustworthy member of the Eurozone.

Mr Farage was really unlucky to attack Greece on the same day that markets proved their confidence to the Greek economy.

VARVITSIOTIS Ioannis
TRAKATELLIS Antonios
DIMITRAKOPOULOS Giorgos
KRATSA-TSAGAROPOULOU Rodi
GKLAVAKIS Ioannis
PANAYOTOPOULOS-CASSIOTOU Marie
PAPASTAMKOS Georgios
VAKALIS Nikolaos
MAVROMMATIS Manolis
SCHINAS Margaritis
ANGELAKAS Emmanouil

Government bonds are basically an IOU issued by a government to private investors who loan the government in question money in return for a promise to pay them back with interest at a specific date in the future. But that's not actually what the Greek Treasury has sold. What they have, in fact, sold is shorts.

Short selling is a type of gambling, like the futures market. On the futures market you buy something that doesn't exist yet, such as the future production of a diamond mine, and hope that what you've bought is going to be worth more when you get to sell it. With short selling you borrow some security (such as a government bond), sell the security that you don't yet own and hope that you can buy the security you've sold at a cheaper price in the future to make a profit.

Raising €2,550bn from short selling government bonds might sound like an excellent achievement but the problem with giving out €2,550bn worth of IOUs is that you have to pay it back and when the Greek economy is hit harder than most of its fellow Eurozone members, the chances of those private investors not getting their money back are higher than if, for example, they had bought US Treasury Bonds.

Now, just as you and I have a credit rating which banks and credit card companies check when you ask them for credit, so do countries. The de facto authority on a country's credit rating is Standard & Poors who have been rating corporations and treasury's for well over a century. On the announcement that Greece had landed itself with €2,550bn of dubious debt, Standard & Poors downgraded Greece's credit rating to A- which will make any future attempts to borrow money by the Greek Treasury will be difficult and expensive.

All of which prompted this reply from Nigel on Wednesday:

From: FARAGE Nigel [mailto:nigel.farage@europarl.europa.eu]
Sent: 14 January 2009 14:53
To: VARVITSIOTIS Ioannis; MEP
Cc: HELMER Roger
Subject: RE: Message by the Greek EPP-ED Delegation

Dear Mr Varvitsiotis

As Mr Helmer has pointed out, today, the transactions, which you thought were Greek-government bond-issues, were, in fact, issues of "short notes", which bear no relation, in terms of credit-worthiness, to bonds.

Moreover, this afternoon, Standard and Poors have downgraded Greece's credit-rating to A-minus, with Spain, Italy, and then Portugal, likely to follow. No credit-rating reduction of this magnitude has previously afflicted the desperately propped-up eurozone, which, I think vindicates my remarks of yesterday morning, in full.

Yours sincerely

Nigel Farage
UK Independence Party

That's another point to UKIP I think.