Beware of Greek Debts

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EU finance ministers are pressing their indebted and riot-prone Balkan member to embrace a massive austerity plan and plug its debilitating deficit.

But with markets sceptical and the appetite for more bailouts at a low, there are deepening concerns that a Greek meltdown could deal a severe blow to the very European idea of a common currency, and set off a domino effect through Italy, Spain and Portugal.

Yesterday, some European Union leaders said they were confident that Greece would pull itself out its debt crisis under a plan submitted by Prime Minister George Papandreou, who promises to cut expenditure and tighten the country’s notoriously leaky tax system.

Spanish Finance Minister Elena Salgado – whose country holds the rotating EU presidency – said she was not worried that Greece will default.

She refused to discuss the possibility of a bailout in case Greece fails to make debt repayments – fears that have sharply raised its borrowing costs.

“I think Greece is going to do all that is necessary to avoid that,” she said before chairing an EU finance ministers meeting.
A bailout would be a first for the decade-old eurozone, which now looks vulnerable and faces painful, unpopular measures such as budget cutbacks and higher taxes.

Other European governments were less sure – and reluctant to pay for Greece’s failure to manage its debt.

Finland’s finance minister Jyrki Katainen bluntly said the Greeks couldn’t expect “any outside help”. Dutch Finance Minister Wouter Bos said the Greek plan to cut debt needs to be more substantial because it is based on vague one-offs such as a promised fight against corruption.

Markets are also sceptical that Greece can make the cuts that are needed. BNP Paribas currency strategist Ian Stannard said investors believe they “lack detail and in some respects appear unachievable”.

Stannard cited the risk of investors losing their appetite for Greek bonds, 70 per cent of which are held by foreigners.

Bigger, better off countries such as Germany would be faced with leading a bailout, but it’s not certain that their leaders – or voters – would agree. Meanwhile, other countries with heavy debt loads – Spain, Italy, Portugal, Ireland – would have to pay more to borrow if investors flee government bonds because of Greece. Read More

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NZ Debt Binge

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THERE WAS no let-up in the rate at which finance companies dragged defaulting debtors into court in the eight months to the start of December.

Just over 4800 people were hauled in front of district courts to have summary judgements recorded against them for unpaid debts owed to finance companies, a symptom of the damage done by New Zealand’s credit boom and bust.

In many cases the judgements, most for less than $10,000, will be the first step towards bailiffs arriving on the doorstep and eventually bankruptcy for delinquent debtors.

That figure compared with the nearly 4000 who received similar judgements in the 6 1/2 months to mid-April, indicating there was no overall slow-down in the pace at which debtors were held to account by lenders.

New Zealanders went on a credit binge in the past decade, which, when combined with mortgages, resulted in the average household debt spiking from 74% of disposable income in 2000 to 177% in 2008, though in many cases it was much higher.

Topping the chart for judgements sought and awarded against debtors was once again Evolution Finance, the debt-collection arm of listed company Cynotech run by Allan Hawkins.

Hawkins was chairman of Equiticorp, the most notorious of the listed companies which collapsed in the 1987 sharemarket crash, and he served time in prison after being found guilty of fraud.

Evolution sought and received 571 judgements from the courts, though once the figures for sister companies Cynotech Securities, Cynotech Finance and Budget Loans are taken into account, Hawkins’ firms were awarded 752.

Cynotech is currently collecting the remaining car loans of failed finance firm Provincial Finance, which it bought from receivers, and is shopping around for other books of consumer loans to buy and chase.

The total even topped the combined 694 judgements sought and awarded to Financial Holdings and Jade Financial Services, the two debt collection companies of the Oldham family, which also own Beneficial Finance. Beneficial was one of the earlier finance companies to collapse, owing mum and dad debenture investors millions, but it is on track to pay them all back under moratorium. READ MORE

Sunday Star Times

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