Kingpins: 'Anyone who lends money to someone else without having some control on the money as to how it is spent is stupid and will probably never see the money again.'
Well, imagine saying NO to every loan request that comes from PIGS. Now imagine the media commentary.
To be honest - it wasn't the German, Finn, French, etc government that lent to Greece. It was the private sector.
'The bigger question in my mind is should it ever be lent to them in the first place with or without controls, in this circumstance will it solve the problem, or will it perpetuate the problem.'
Well again, when the IMF is involved in sovereign financing it is a type 'of lender of last resort' financing. It starts when the private sector ends lending. Imagine a capitalist system without private capital financing. Now imagine the financial press. Controls come with IMF aid - the IMF wants its money back. Think of the Latin American crisis, the Asian crisis - they were just as bad - but the countries survived and in some cases thrived since then.
'It appears that some of the money being advanced will have to be used to pay the interest on the previous money lent!'
That is true. If a sovereign does not pay its outstanding debt (government bonds) - it leads to a very messy default. That is why the core EZ governments subsidize PIG (S) via the troika bailouts and ESFS, ESM, Target2, etc.
Would it not be better to retire the debt and then put growth controls on the country?
Well, all 'bailout' countries pay very low interest (lower than the Aussie government) on their outstanding debts. Not to mention that Greece, Ireland, etc had a helping hand with debt restructuring. The term of the loans that have been extended and interest rates reduced, but most of the European Investment Bank funds are & will be spent in periphery countries.
Is this the way to grow an economy?
There are two main economic camps debating that: 1)some are advocating default on all debts and leaving the euro. In reality that would mean sovereign default, currency devaluation and the return of high inflation. 2)others are advocating staying within the EZ, retaining the common currency, implementing structural reforms with fiscal and monetary assistance from the troika.
To be honest, it is a 'choice between leprosy and cholera' to quote one economist.
