It is a slow day in the little Greek Village.
The rain is beating down and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.
A rich German tourist, name of Merkel, is driving through the village, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner she wants to inspect the rooms upstairs in order to pick one to spend the night.
The owner gives her some keys and, as soon as she has walked upstairs, grabs the €100 note and runs next door to pay his debt to the butcher.
The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the taverna. The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him “services” on credit.
The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor then places the €100 note back on the counter so the rich traveller will not suspect anything. At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money, and leaves town.
No one produced anything. No one earned anything. However, the whole village is now out of debt and looking to the future with renewed optimism. And that, gentle readers, is how the bailout package works.
The parable works because none of the parties involved pay any tax on their income – just like in real Greece!
Are you sure this story did not happen in Brazil?
Regularly. Years ago I was in Sao Paulo for a board meeting and I couldn't buy anything because the currency was being changed from Cruzeiro to Cruzado:-)
Sorry Drayton your version is wrong
Merkel says “The rooms are crap but keep the 100 Euro anyway I've got millions more back home I can screw if I want more”.
That woudn't work at Portugal because the guy at Farmers' Co-op would only pay 90 to 120 days later, just because they can…
Falls over when the money gets to someone in the village who keeps it for themselves and doesn't need to pass it on. Let's think who that might be……ahh yes, the banker.
Long and informed discussion on the shortcomings of this particular model…
http://www.zerohedge.com/news/guest-post-best-thing-ever-written-europe#comment-1911255
whoever wrote this is not as clever as they think. Every Greek in the story produced something and bought something prior to the beginning of the story. They just did it on credit, and owed/were owed money by/from one other person in their circle. Since everyone owed €100 to someone else, and everyone were owed €100, all the group would have to do is promise to forgive the debt of the person who owed them, in exchange for having their debt to someone else forgiven and everything would reset to zero.
It would be like if I lend $10 to a friend and then borrow $10 from the same friend. In reality I didn’t borrow since I was owed the money in the first place from that same person. The ledger is zero.
All the money did in this scenario is work as a tool to indicate that each and every person’s debt had been forgiven, or cleared, without all parties having to meet to discuss the terms of debt forgiveness. It just made the debt reconciliation easier. No one had to think about who owed what to whom and who needed to be paid by whom and sort out everything to make sure everybody got paid and everybody had their debt cleared as well. It did exactly what money does. It removed the confusion from complicated financial transactions involving more than 2 parties.