Greek Yields Soar

Greek 10-year bonds tumbled for a third consecutive day; yield jumped 58 bips 10.34% according to Bloomberg.

The EU revised Greek budget deficit above 15% of GDP. In a leading contender for understatement of the year, Finance Minister George Papaconstantinou said the nation had serious tax compliance issues.

Thus, the ongoing European drama between Greek tax scofflaws, German Industrial financiers, England/Ireland recession continues to play out — pressuring futures, widening spreads, and to leading towards the eventual denouement. Its hard to see how Greece avoids a Restructuring — which, truth be told, is merely a polite word for Default.

The most efficient productive player in Europe is Germany; they benefited the most from the dropping of trade barriers and the replacement of the strong Deutsche Mark with the Euro. (Plus, they absorbed all the cheap labor they needed when they were reunified with East Germany). Selling into the rest of Europe without the drag of a strong currency or any trade barriers has been a boon for Germany.

The calculus about any Greek default restructuring is the Moral Hazard threat. If the terms are too easy, it may encourage the remaining PIIGS — Portugal, Italy Ireland Spain — towards default restructuring their debts.

I place the survival of the EU in its current form at 50/50 . . .

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