Greece: It’s not so bad that it can’t get worse.
Not exactly the slogan I’d use to rally investors to buy the bonds of a country overwhelmed with debt and deficits, but it’s one that fits the news out of Europe this morning, April 22.
According to the statistics office, Eurostat, of the European Union, Greece didn’t run a budget deficit of 12.9% of GDP in 2009.
It was more like 13.6%. And further revisions may take it to more than 14% of GDP.
So much for the Greek government’s forecast of 12.9% from just two weeks ago.And the European Union’s estimate of 12.7% of GDP in November.
It was that November forecast from the European Union that really brought the Greek crisis to a boil.
The financial markets haven’t been slow to turn the news into a rout for Greek bonds and to force a further retreat by the euro.
In response to today’s numbers the yield on the Greek 10-year bond climbed to 8.49%. That’s the highest interest rate since 1998. The cost of insuring against a Greek government default rose to a record.
Economists estimate that an interest rate on its debt above 7% is ultimately unsustainable for Greece and will force either a default or a bailout led by the European Union. The European Union and the IMF (International Monetary Fund) have offered a $60 billion package of emergency loans.
The news hasn’t exactly been a boon for the euro. As of 9 a.m. ET this morning the currency was down 0.5% against the U.S. dollar with it taking $1.3318 dollars to buy a euro.
But strangely, EUO (ETF double short the Euro) is down a bit today. Profit taking maybe. I’m thinking of buying another position’s worth of it. I see nothing but trouble for the Euro in the immediate future.
Back in 1992, if you studied the economies of Latin America, you could have correctly forecasted great pains over the next decade. Starting with Cuba, without Soviet aid, the economy nearly collapsed. Mexico’s currency crisis in 1994, and ultimately the unsustainable Argentine and Brazil 1:1 peg with USD that resulted in Argentina’s collapse in 2002. Looking forward to the coming decade, from a fundamental macro economic structural perspective, the Euro zone and EU might have a painful decade ahead. Greece, Portugal, Spain, Ireland…. and even Italy and the UK….. a key factor is German tax payer’s unwillingness to help. I forecast the ONLY major currency the USD is going to depreciate against will be the Chinese RMB yuan. A strong dollar and low interest rates for the US because of the Euro for the next decade? As selfish as this sounds, let’s hope so, since I have 2 ARM-adjustable mortgages on 2 properties… hahaha.
Papandreou & Co continue to keep everybody on edge. I think this story will be “reappearing” from time to time. Nobody wants to swallow the bitter potion by the spoonfuls so they are doing it drop by drop.
I am so sick and tired of Greece! Get the hell out of EU! But would not travel to Greece.
Bond yield hit 11% briewfly this morning; Portugal and Spain supposedly “modestly affected”… looks like a temporary meltdown.. playing FAZ and QID past few days.