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Victoria Mindova

The cost of lending to Germany and the USA has dropped significantly since the height of the Greek economic crisis. This is shown by the interest rate level of lending to the three countries. For a year, the interest rate on the Greek foreign debt jumped from 5.99% to 25.18%. At the same time, the interest rates on ten-year German government bonds fell to 1.9% from 3.1% in 2010. The USA has also benefitted since the cost of lending fell from 2.9% last year to about 2% in October this year.

Return to volume ratio of attracted investments in US government bonds is disproportionate because it is has low profitability. Nevertheless, it raises capital. Investors are looking for safe investments and are avoiding risks that could cost them dearly. This phenomenon in finance is called Flight to Quality, which in this case is more a flight to security after the states in the European periphery have started to feel the first shocks of economic instability. "In these circumstances, money from Europe is flown to the USA and Germany to find security," said Elias Karavolias, who is a financial analyst and advisor on strategic mergers and acquisitions, in his speech, "Governments vs. Markets". He stressed that liquidity in global markets is limited now and the struggle for supremacy between major financial institutions in the world is extremely fierce.
 
Currently, the biggest stake is who will help the European Financial Stability Facility (EFSF) to accumulate the necessary funds to absorb the debt crisis of the old continent. The initially planned general guarantee of € 440 billion of the Facility will not be sufficient to support the financially troubled eurozone countries. The idea is, on the one hand, for the European Financial Stability Facility to raise capital alone by issuing its own bonds, which are actually Eurobonds, and on the other, to accumulate funds from member states. "The actual amount available to the European Financial Stability Facility is € 80 billion, € 20 billion of which comes from Germany. The remaining comprises liquid swaps, open lines of the European Central Bank and others. Major factors in the European Central Bank insist that the European Financial Stability Facility needs three trillion euros to be sustainable," said Karavolias.

He stressed that this amount is very great for the European countries to raise it themselves and here lies the role of capital markets again, as a necessary evil, to help accumulate the necessary funds.
 
"The inability to fill the cash float of the European Financial Stability Facility is due to the fact that if European countries come to the capital markets today, they will have to pay interest rates in the range of 5% -7%." Karavolias stressed that the European Financial Stability Facility’s capitalization under these circumstances is not possible or sustainable, because the contractual interest rate on the bailout to Greece is lower than the level of lending to most other European countries. He gave the example of France, which can borrow money from the free markets at an interest rate of close to 5% to submit it to the European Financial Stability Facility and Greece can repay the bailout loan at 3.5% and at a loss respectively.

According to Karavolias, the solution for the financial puzzle of Europe lies in the provision of commodity or gold guarantees for the issuance of a new common type of bonds that will help the accumulation of rescue funds. "It should be decided whether Europe will start printing money," said the financier. He stressed that buying toxic European government bonds by the European Central Bank does not solve liquidity problems. Only the printing of new money will actually flow new blood into fragmented Europe, but this process requires specific guarantees of real value whether it is gold, real estate or raw materials.