Busch: Greek Buyers Remorse
Today, the Euro came under pressure with after a series of stories have emerged over the last 24 hours on the details for a Greek bailout.
Denial, delusion, and unstable come to mind for the situation as the markets have already voted with their feet by sending the Euro down 150 pts and sending Greek bonds yield up 27 basis points to 6.83%.
Pointing fingers elsewhere, Greece’s Deputy Prime Minister Theodoros Pangalos stated that their type of debt problems are likely to spread further in the Euro Zone and that Portugal could be next in line for attack. Remember, this is the same Greek minister that earlier this year accused Germany of not properly compensating Greece for World War Two occupation, as saying Germany's hard line in talks with Greece was based on a "moral, racial approach" and the idea that Greeks don't work enough. (Rtrs) (No word on whether he wants to takeover Joe Biden’s role for the US government.)
Today, the FT reports that Germanyis taking a tough line on the interest rate for the lending facility that the EU created to assist Greece.
“Most Eurozone nations are prepared to offer loans at 4 to 4.5 per cent, the rate paid by the euro zone’s other big debtors, Ireland and Portugal, EU officials told the Financial Times. But Germany says Athens should pay 6 to 6.5 per cent, the rate it pays on its 10-year bonds.” Apparently, the language of “unsubsidized” rates for Greece is a problem as Berlin feels that its Constitutional Court would strike down cheaper financing.
Greece announced that they are going to target US investors for the next issuance of debt. The plan is to raise $5 -$10 billion to cover their May funding needs. This isn’t that interesting until you understand the reason why they are going to the US. “Greek bonds to US and Asian investors this year fell through amid rumors that the Chinese had shunned Athens’ debt,” according to the FT.
Finally and most damaging, the Greek government said it wants to amend their EU aid accord to bypass IMF, government sources told Market News International. “The government fears that tough conditions imposed by the IMF could cause social unrest. The sources said there is "a strong chance" Greece will have to request aid, despite recent avowals of self-sufficiency. The Greek government wants a clearer, speedier, European aid plan with more lenient conditions for triggering aid.”
The Greek government appears to be having “buyer’s remorse” after agreeing to terms for support and then trying to get out of the conditions that provide that same support. Why US investors would have interest under these shifting auspices of support is going to be fun to watch. Greece must believe that they can engage in fiscal philandering, then plead for forgiveness and support from the EU/IMF, and finally revolt against the exact terms that they will get support.
While I don’t believe Greece will default anytime soon, they are doing their best to make the markets believe otherwise.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.