Answer to Question #84564 in Macroeconomics for Dennis Gurban

Question

If the Greek government defaults on its bonds issued by French and German investment banks, how does that prevent the French and German governments from paying back the money that they owe to investment banks in other Euro countries?

Answer 1

The banks did not issue the bonds. Greece did. The fact that they were sold through banks in France and Germany doesn’t mean that those banks or those countries have any liability. So, as Euro lending is controlled by central banking in the European Union, then particular country banks are covered by central banking.