The word Greece is kept out of the news these days. Governments want the world to invest in what they call ‘risk’ assets, by which they mean, assets of which the price will probably fall in the years ahead. They will only do this, if all potential bad news like the coming default of Greece on its debts is kept under wraps.
But markets don’t hide. They trade every minute of every hour of every (working) day. And those lending to Greece now only expect to collect 20% of the amount they are promised by the Greek government. An 80% risk of default is priced into these bonds.
The news channels like to say that the Eurozone’s banking system is sound, and that no eurozone country will default. But the pricing of Greek government debt tells a very different story. As the prices ticks up, the expectation of loss gets bigger.
The lenders would do better to get the default out of the way, the Greek currency revalued to a level at which the country can compete, and the finances put on a sound basis for the future. But the maintaining of countries like Ireland and Greece within the eurozone is not a financial decision, taken in the interests of Irish or Greek citizens. It is a painful face-saving operation for the EU which cannot (yet) face up to the reality of what they have done.
Irish rates are at a record gap over German bonds, suggesting a 60% chance of default.
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