Friday, 23 March 2012

Panic in the markets - a gift for Greece

The massive gift that taxpayers and investors in many countries are forced to hand to the Greek citizens is unprecedented in recent history. While many commentators argue that the accumulated debt of the Greek state simply was too high a burden and had to be reduced we think that the origins of this crisis lie in the panic that gripped the bond markets during the past two years. For a long time the interest rate that Greece had to pay on its bond issues was artificially depressed due to carelessness by the investor and banking community. Starting in late 2009 the markets switched from overoptimism to pessimism. Increasingly a debt load that could have been restructured became unsustainable as market rates on Greek debt reached astronomical and unaffordable levels. Therefore one could say that Mister Bondmarket has made it possible for Greece to have its debt load cut by substantial amounts - with more to come in the future. Or does anyone really think that Greece would have gotten away with such a blatant renunciation of its obligations if interest rates on its bonds would have remained at, say, 4 or even 5 percent? For a more amusing take on this watch Panos the Greek

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