Debtors 'promising' to pay up -- a promise that creditors feel is more believable if debtors submit to financial repression (austerity) -- allows creditors to extend additional credits and pretend debtors will somehow -- some day over the rainbow -- be able to repay their arithmetically unpayable debts. Debtors use the newly borrowed credits to make payments on their old debts to the creditors. This forestalls the booking of losses on uncollectable credits; losses that would render the creditors insolvent. Bankrupt. Kaput.
Commercial banks are, after all, in the for-profit credit-lending "business". The downside of profit is loss. When a commercial bank makes too many risky loans and bond purchases, and the borrowers can't repay the loans, the bank loses its owners' and its depositors' money and goes "out" of the banking business. Meanwhile, a failed bank can't pay back its depositors' money, so either governments (taxpayers) fund 100% deposit insurance payouts, or depositors take a haircut.
We are talking about failed banks in creditor nations -- the Germanies -- and bail-ins of Germans' bank deposits. It is the German commercial banks who made loans of bank-issued credit-money to the Greek debtors. Greek debtors used the credits to pay for German-made trains and cars. Greeks now have trains and cars. German workers and corporations (who were paid the credits by the Greek buyers) now have the credits, as deposits in their German bank accounts.
Greeks "paid" all the borrowed credits to German exporters; and the exporter companies paid those credits to their German workers. With no "money" left, Greek debtors can't pay their debts to German banks. The creditor-banks suffer fatal losses. The banks can't pay their creditors -- their depositors. So the 'solution' to systemic bank failure is German bank deposits get bailed in to bail out their failed banks. But they're not talking about that, yet. They're still pretending Greece will pay up.
There are millions of depositors and about the same number of taxpayers. Germans worked hard to build all those trains and cars that Greeks bought with German bank loans. Now German banks fail because Greeks have no money to repay the loans, and the savings of German workers are threatened. It's not fair. Bailouts and haircuts are political problems.
Creditors demand to be paid by debtors, even though debtors are busted flat in Baton Rouge waiting for a money train to whisk them off on a magical mystery tour out past Broke Burg bound for Fat Money Flats. But the train never arrives. The trains were made in Germany by Siemens. But Greece has no money to operate the railroad.
Starry-eyed debtors "shouldn't have" borrowed so much credit to buy Siemens trains and Porsche Cayennes. Greedy creditors "shouldn't have" loaned so much credit to tourist island deadbeats who can't afford German manufactures. But the time for moralizing was before the creditors loaned and the debtors borrowed; before all those trains and Cayennes were sold to and bought by people who could not afford to buy them with their earned incomes.
The credits made the sales and purchases "possible". Greeks enjoyed riding high tech trains and driving superbly engineered luxury cars; and Siemens and Porsche earned lots of sales revenues and profits, while the Ponzi financing scheme lasted. Now everybody is crying because "we shouldn't have".
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