23 April 2010

Greece: call on the international funding package (end of chapter 2)

At last Greece recognized that they would not be able to refinance the 10 yr bond maturing 19yh May. As reported by Bloomberg, spreads immediately shrunk, so not dramatically however, with credit-default swaps on Greek government bonds falling 54 basis points to 591 today, after rising to a record 650 basis points yesterday, according to CMA DataVision prices. Greece is at parity with India and the Philippines on its 10 year bonds…
As the 15 Parliaments of all eurozone countries must approve the bilateral credit lines (and I am not convinced that all will do), the IMF will be the first to provide the lifeline.
Greece failed to convince the market and with a reason; Mr. Papandreou, Greece Prime Minister, in a public TV address said: the activation of the EU-IMF. rescue plan “will send a strong message to the markets that the EU is not playing their game and will not leave its currency at risk.”  Really? Markets are playing games? Markets created an unsustainable situation in Greece? Markets are the civil servants demonstrating against austerity measures? Markets are fudging national account numbers? Markets just analyze facts and then act. Markets don’t live in fantasy land.
Does this solve the Greek crisis? Not at all; the eurozone just gains more time hopefully to organize the default of Greece. Like in other European countries, civil servants in Greece are resisting change. They already warn that they will not accept any additional austerity package, that will be necessary anyway. 
Moody's Investors Service, the ratings agency, downgraded the government bond ratings of Greece to A3 from A2 and placed them on review for further possible downgrade: credit rating agencies always behind the risk curve… (Fitch having fired the first shot late last year merits some brownies).