Sovereign Debt
The sovereign debt timeline has become interesting. Right now the big deal is Greece and only Greece. To a large degree Greece can't get out of its own way. The pressure has been taken off Italy, Portugal, Ireland, and Spain. Probably because there is push back from the EU. After all markets are bullies and cowards at the same time. The flight right now is to the USD, and commodity currencies such as the Canadian Dollar.
Greece
Let's figure out what the real situation with Greece is. Greece has time and time again cheated on its figures, including getting into the Euro. http://www.cnbc.com/id/35438321 If the cheating on Greece was so rampant, why now, or more aptly put, why about two months ago?
Two things happened. In October 2009 there was a new government headed by George Papandreou http://en.wikipedia.org/wiki/George_Papandreou_%28junior%29. And he told Goldman's to go away in November.
But what makes me think is how the yield curve all changed around this.
Look at the Greek, Germany, Canadian, and American yield curves from September 2009:
Then let's look at the yield curves in October 2009:
Now look at the yield curve:
What you should notice is how since October the market has gone crazy. Could this be related to Goldman's? After all if rebuffed, and you know how bad the situation is, would you not short? I actually think it is a combination of things. The government tried to make the situation worse than it is, since that is the first you do when a new government goes in, and secondly the market was made aware of the problems Greece is facing.
Do the EU countries care?
The EU is both in a tough situation, but also in a situation they want to be. The EU countries with money are telling Greece that they should fix themselves and that they will not be getting money from them.
Sweden http://www.zeit.de/newsticker/2010/2/16/iptc-hfk-20100216-60-23897902xml> Austria http://de.reuters.com/article/economicsNews/idDEBEE61F0A920100216 Germany http://de.reuters.com/article/economicsNews/idDEBEE61F0B420100216 Euro Group and Luxembourg http://www.focus.de/politik/weitere-meldungen/griechenland-euro-gruppe-setzt-land-auf-harten-sparkurs-_aid_480593.html Finland http://de.reuters.com/article/economicsNews/idDEBEE61E0E120100215
Who is left? Or let me rephrase this, who is left that has the money to help? Answer NOBODY!
The EU likes a weaker Euro because it allows them to export more.
This aspect has been validated by a little heard German news article http://de.reuters.com/article/topNews/idDEBEE6300BI20100401 In the article it says that the German economy has experienced the strongest growth since 2006. This effect is also present in France, Italy, and Spain. As I predicted several months ago, NOBODY in the EURO zone cares that the Euro is dropping.
You have to remember that Eurozone countries are big exporters of certain products. French it is food, and aerospace, Germany its machinery and automotive, and the list goes on. Thus there is no desire for the Eurozone countries to support Greece.
While Greece wants Germany to help, Germany, in particular its people, do not want to help Greece under any circumstance. The reason is because Germany with its reforms has had quite a bit of hardship. The Greeks on the other hand have said, “hey we want to retire at 61”. This does not go over well with the Germans.
But you have to wonder why are the various countries not touching Greece with a ten foot pole? Maybe everybody knows something, and that something could be the Greek budget.
Analyzing the Greek Deficit
I was looking at the Greek budget as I have a habit of looking at the details of things. And what I saw made me very nervous and I wonder if I am reading this correctly. The Greek budget for 2010 is available at the url http://www.mof-glk.gr/en/budget/exec_sum_2010.pdf
Now look at the snapshot from the top of page 19:
I see Tax Revenues of 91 billion, with a grand total of about 102 billion. What scares the crap out of me are the borrowing lines; 38 billion and 6 billion. In other words 44 billion of the revenue is from borrowing money. At least that is how I read this. It means 44 billion of the 102 billion revenue is money that needs to be paid back eventually. In other words Greece is borrowing 40% of budget! That is unsustainable, and now I understand why the market is concerned. Since Goldman's is so close to the numbers I can see why Greece wants to constantly push its debt to the future.
What should be of concern is that with 40% of the budget being debt issue the interest fees are going to become outrageous. Greece will collapse because to pay the interest it will need to issue debt.
IMF Support
The German Handelsblatt is a very reputable economics paper. They are talking about something that I referenced to earlier and heard from a trader. The IMF should save Greece.
The IMF as a vehicle is interesting because the US is the biggest sponsor. I read in an article that some in the EU want the IMF to solve this because an American company (Goldmans helped Greece hide its problems). Schaeuble, German finance minister is currently against getting this, but the FDP and an Ex ECB banker wants it.
What are the ramifications of this? I would think that Greece would be kicked out of the Euro zone. Maybe the Euro debts will go for 50 cents or so on the dollar/euro. Though I don't think this will help Greece since Greece has shown that it is incapable of standing on its own. In all of the years Greece has been part of the EU it has always received money.
Will it be kicked out of the EU? Depends on Greece actually.
http://www.businessinsider.com/gartman-dont-be-fooled-the-imf-will-ultimately-bail-out-greece-2010-3,http://imarketnews.com/node/9365
Battle Against the Market
Junker wants to wage war at those who play against Greece, if Greece is successful in implementing its changes.
I saw this coming, and the market better watch this closely. The Eurozone wants to desperately get at speculators.