This is what it looks like when bond markets run the world
This is what it’s like when a country loses control of its own affairs and has to dance to the tune of the bond market.
Today, March 3, Greek Prime Minister George Papandreou announced another $6.6 billion in budget cuts. The new round of reductions is meant, first, to convince skeptical European Union leaders that Greece is serious about reducing a budget deficit that had climbed to 12.7% of GDP (gross domestic product.) Leaders such as Germany’s Angela Merkel, scheduled to meet with Papandreou on March 5, have refused to offer Greece any concrete aid or guarantees without further action.
But the real audience here is the bond market. Greece has to roll over about $25 billion in bonds in April and May. The bond market could force Greece to pay a ruinous interest rate to refinance that debt or, worse yet, simply refuse to bid at all. The latter would bring the country one step closer to default.
But Greece—or more accurately the average Greek citizen—is going to pay a hefty price to convince the bond market to pony up.
The Greek debt (and euro) crisis will drag on and on
Calendars here. Get your calendars here. Can’t follow the Greek debt crisis without a calendar!
Have to have one. This crisis will either blow over in the next two months or so or run until the end of 2010 and threaten to take down Greek and German banks (German banks look like the biggest holders of Greek government and bank debt) and the euro. It all depends on how the chronology plays out.
Europe’s politicians fiddle while the Euro burns
So much for the Euro rally.
After rallying against the U.S. dollar on February 16, today (February 18) the Euro is back to its old ways. As of noon in London the dollar had gained 0.4% against the Euro, sending that currency to its lowest level since May 2009.
Comments from German Chancellor Angela Merkel and other German politicians on the one side and Greek prime minister George Papandreou on the other reminded currency and bond traders that there is still no plan for how to end the Euro crisis set off by an out of control Greek budget.
Euro rally a one day wonder? (Maybe three?)
Today’s rally in oil and other commodities that pushed the entire stock market higher was built on a weak dollar and a stronger Euro.
Right now this looks like just a euro bounce. A one (or at most a few days) wonder.
The Euro is still well below its 200-day moving average, which indicates that the trend for that currency still points down.
But the Euro has tumbled so far and so fast that technical indicators are pointing to the strong possibility of a short-term rally.
The bet is that the Euro is headed even lower
Nobody is taking off their bets against the Euro quite yet.
Short positions against the Euro on the Chicago Mercantile Exchange, which had set a record in January, set a new record in the three weeks that ended on February 9. And judging from the continued pressure on Greek stocks and bonds, the trend is still to short the Euro’s troubles.
During the three week period short contracts on the Euro climbed to 63,000 contracts from 41,000 contracts.
