According to Wolfgang Münchau, Greece will default, but not this year(FT,Deutschland,www.ft.com/comment/columnists/wolfgangmunchau).
W.Münchau says that " I am willing to risk two predictions. The first is that Greece will not default this year. The second is that Greece will default. The Greek government has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default.[...] To get out of this mess, one of five things will have to happen."
“The first, and most optimistic, solution would be a significant fall in the euro’s exchange rate, say to parity with the US dollar, coupled with a strong recovery in the eurozone.” (W.M)
Even a strong recovery in the eurozone would be likely met by a more sustainable and stronger one in USA. Thus, a depreciating euro against dollar is not such an optimistic scenario at least in the short and medium run. This partly might sustain Greek growth as it adjusts. Greece will also get access to low interest rate loans not from the European Union and the International Monetary Fund -not required-, but due to a global and eurozone recovery, funds will be “desperate” to be given as loans to a eurozone member as Greece, given that it would become crystal clear that Greece will remain a eurozone member. Buying a greek government bond is an investment opportunity without any historical precedence, i.e. a 7% return in euros without real default risk and without the fear of a really depreciating currency. (“Markets” lend cheaper even at Hungary, a non-eurozone member. “Markets” exaggerate on both sides, upwards and downwards.”)
Jean-Claude Trichet said on Thursday 8/4/2010 that “markets are always right”. Are they? If we are not, they are not, and Greeks tend not to be right!
“The Greek government has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default.” (W.M)
The Greek government can borrow at a rate of about 6-7 per cent, but there is no need to do the public debt dynamics given that the spread “against” german bonds will not remain widened from 300-400bps (basis points).
Ten-year Greek bonds GR10YT=RR yielded more than 400 basis points over equivalent-maturity Bunds EU10YT=RR, on first week of April 2010, when 4-7 years ago, the extra yield was close to 0bps, thus I repeat that markets exaggerate on BOTH sides and markets are NOT right.
12th of April, 2010
“The first, and most optimistic, solution would be a significant fall in the euro’s exchange rate, say to parity with the US dollar, coupled with a strong recovery in the eurozone.” (W.M)
Even a strong recovery in the eurozone would be likely met by a more sustainable and stronger one in USA. Thus, a depreciating euro against dollar is not such an optimistic scenario at least in the short and medium run. This partly might sustain Greek growth as it adjusts. Greece will also get access to low interest rate loans not from the European Union and the International Monetary Fund -not required-, but due to a global and eurozone recovery, funds will be “desperate” to be given as loans to a eurozone member as Greece, given that it would become crystal clear that Greece will remain a eurozone member. Buying a greek government bond is an investment opportunity without any historical precedence, i.e. a 7% return in euros without real default risk and without the fear of a really depreciating currency. (“Markets” lend cheaper even at Hungary, a non-eurozone member. “Markets” exaggerate on both sides, upwards and downwards.”)
Jean-Claude Trichet said on Thursday 8/4/2010 that “markets are always right”. Are they? If we are not, they are not, and Greeks tend not to be right!
“The Greek government has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default.” (W.M)
The Greek government can borrow at a rate of about 6-7 per cent, but there is no need to do the public debt dynamics given that the spread “against” german bonds will not remain widened from 300-400bps (basis points).
Ten-year Greek bonds GR10YT=RR yielded more than 400 basis points over equivalent-maturity Bunds EU10YT=RR, on first week of April 2010, when 4-7 years ago, the extra yield was close to 0bps, thus I repeat that markets exaggerate on BOTH sides and markets are NOT right.
12th of April, 2010
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