While it’s often said no publicity is bad publicity, Greece is a clear exception to the rule. Mentions of Greece in stories on the terminal are approaching its May 2010 high; corresponding with the period Greece first accepted an EU sponsored bailout. Greece’s more frequent mentions have come at a cost for the country and investors alike as bond yields soar, while the price of protecting against a Greek default through CDS rises precipitously.
Greece’s 10-year yield is presently trading just shy of 17%, highlighting that investors have likely already accepted the inevitable that the country cannot survive without bond holders taking a significant haircut. The cost of protecting against a Greek default is approaching 2000 basis points, making it more than three times as risky as Argentina on a five year CDS basis.
Greece will be holding a critical confidence vote tonight for Prime Minister George Papandreou that will likely determine whether the country will be forced to default/restructure now or in several months’ time. After this vote Greece will have two weeks to pass additional austerity measures to unlock an additional EUR12bn in aid from its neighbors - Greece owes approximately EUR18bn in debt payments now through August. In any case, any European aid will likely prove to be a temporary relief with this scenario playing out again and again until a painful restructuring is finally undertaken.
Hesitation from eurozone officials around a Greek restructuring are being stoked by the possible impact on their own countries. Officials are likely trying to buy time in hopes of finding calmer markets before forcing Greece to restructure, limiting the potential contagion effect. The problem is markets won’t calm, while there is still a hurricane raging in Greece.