Doubts (And Bond Yields) Are Rising Again In Greece
If "everything is awesome" in Greece (and Europe) then why - oh why - did Greek government bond yields surge higher today, Greek stocks tumble, Greek bank stocks (and less so bonds) collapse, and Greek CDS jump? It appears that as the euphoria relief wears off, as WSJ reports, doubts over the willingness of Greece’s left-wing government to follow its creditors’ orders on budget cuts and economic overhauls spilled into the public today. IMF's Lagarde stated that the Greek proposal "is not conveying clear enough assurances that the government intends to undertake the reforms," and even Syriza officials admitted, "it is difficult to determine how the government can fulfill its promises, including the debt write-off, with this agreement,” as doubts arise across Europe's policymakers and markets.
Greek banks were monkey-hammered... not exactly the reaction of a confident "deal done" investor base...
And Greek government bond yields surged (5Y +65bps today!)
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As Xinhua reports, Germany's Schaeuble remains as doubtful as ever...
German Finance Minister Wolfgang Schaeuble said on Wednesday that there were doubts in Germany about Greek government's credibility over debt issue.
The minister said Eurogroup's decision on Tuesday to extend aid program for Greece until end of June was "not easy" for creditors, nor for Greek government.
"Now the question is: Can you believe the assurances of the Greek government or not? There are many doubts in Germany, this must be understood," Schaeuble said in an interview with German SWR2 radio.
A poll by INSA institute showed on Wednesday that only 21 percent of Germans support the extension of aid program for Greece.
Bundestag, the lower house of German parliament, was due to vote on the deal on Friday. Though Chancellor Angela Merkel's governing coalition of CDU/CSU and SPD holds the majority in the parliament, skeptical voices were heard on Wednesday.
CDU's economic council sent a letter to parliament members to urge them not to support the extension.
"We must not fear of a blackmail from aid we have already paid," read the letter cited by Frankfurter Allgemeine Zeitung newspaper.
In an interview with Passauer Neue Presse newspaper, CDU politician Wolfgang Bosbach warned that he would vote against the extension on Friday.
Schaeuble said euro zone finance ministers' decision on Tuesday gave Greece more time to fulfill its reform commitments made to international creditors.
"If they do so, they will get the outstanding payments from the current program," he said. "No single euro will be paid before that."
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This is a long way from over... And sure enough Fitch pitches in...
- *FITCH:GREEK DEAL MAY NOT ADDRESS ALL BANK FINANCE UNCERTAINTIES
- *FITCH: HIGHLY UNLIKELY GREECE TO GET MKT ACCESS BEFORE SUMMER
- *FITCH:GREECE TO PROBABLY NEED REPLACEMENT PROGRAM PRE JUNE END
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The simple fact is that Greece's government spending makes no logical sense. Therefore, call it what you must, the simple fact is they need to make a reasonable budget and that means cuts. Given the massive amount of government spending, it will hit Greece hard. And given the massive unemployment and massive percent of people employed by the government or through agents mainly financed by the government, it will not go over well if it works.
Greece is in a mess that will not be corrected without great pains. It's easy to complain from the side, however, the reality is that doing something about their mess is not easy. Whoever is in charge of Greece will either be very unpopular or will lead it to its natural conclusion, default and a massive scaling down of government and/or massive taxes.