Courtesy of Mish.
German finance minister Wolfgang Schäuble has a sense of humor. Today he said to U.S. Treasury Secretary Jacob Lew: I’ll Trade You Greece for Puerto Rico.
Who knew Wolfgang Schäuble, Germany’s prickly finance minister, had a sense of humor?
At a news conference on Thursday, Schäuble chided U.S. policy makers, who have been urging Greece and its creditors to agree on a new bailout, saying they didn’t understand why a ban on bailouts is vital for the functionality of a currency union.
Schäuble then shared a proposition he had made to U.S. Treasury Secretary Jacob Lew: The eurozone would take in Puerto Rico, if the U.S. would allow Greece to adopt the U.S. dollar. Dow Jones Newswires reported on the news conference.
Assume for a second the offer is legitimate. Should the US accept it?
MarketWatch Answer
The Puerto Rican government’s debt-to-GDP ratio is about 60%. But if you include the island’s unfunded pension liabilities and the debt of its public enterprises, that figure rises to about 150%, according to data provided by Goldman Sachs.
Greece owes 315.5 billion euros in sovereign debt, which equals 177% of its 2014 GDP, according to Eurostat data.
So judging by the figures alone, the trade would be a winner for the eurozone.
MarketWatch Blew It
Actually, the trade would be a good deal for the US. The key is in the wording of the proposal.
The Eurozone would be stuck with all of Puerto Rico’s debt while Greece “adopted” the US dollar.
Technically speaking, Greece could “adopt” the US dollar today.
Schäuble never said that the US would have to bail out Greece, Nor did he say Greeks would have the ability to print US dollars.
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