Greek 10-year bond yields pop by 50!

Today, February 9th, is an historic day. Today in 1916, conscription began in Great Britain as the Military Service Act became effective. Today in 1918, Ukraine signed a peace treaty with the Central Powers – a deal to provide food to Prussia (Germany) in exchange for military defense from the belligerent Bolshevik forces of Russia. And today in 1922, the U.S. Congress under Harding establishes the World War Foreign Debt Commission.

But today turned out to be yet another rather grim day for Greece.

Greece 10-year bond yields have begun spiking again

Source: Bloomberg

The Greek 10-year generic bond yields have officially popped up by over 50 basis points (or 0.50%), or by 82 basis points, to be precise, over the last fortnight. The 2-year bond yields surged 64 basis points just today to touch 10%, while the current 10-year bond yield level of 7.816% at 7.34 AM EST is just 50 basis points below October-end levels, from whence the Greek bonds began a bull, (now turning into bull-you-know-what) now reversing at a fast clip over failed negotiations with the European Union creditors.

Here on the blog version of pop-by-50 (A podcast version coming soon), we will dissect the reason behind the latest rounds of failed talks and try to find a way out for Greece in the free market, Misesean spirit.

Greece debt % GDP

Source: UK Telegraph, Eurostat, Haver Analytics

  • Greece is due to pay €7 bn in July ’17, which will not materialize unless bailout cash is injected. Individual financiers at the IMF are increasingly unwilling to fund endless bailouts for the Eurozone’s most troubled country, passing more of the burden onto the EU. The kick in the nutz came from German Finance Minister Wolfgang Schauble, who told the German broadcaster ARD, that in order to cut its debt, Greece would have to leave EU
  • The US ambassador to EU of the new Trump administration, Ted Malloch, suggested on Feb 8th that Greece could very well exit the European Union. “This time I would have to say that the odds are higher that Greece itself will break out of the Euro.”
  • ESM: Europe has made clear commitments to support Greece with additional debt relief after the European Stability Mechanism program, under the condition that this is necessary and that Greece has implemented all the agreed program reforms
  • Earlier in the week, IMF had suggested that the Greek debt crisis was truly in a spiral and needed urgent relief – “Significant debt relief.” Nov-16 unemployment of 23%, growth of 0.8% Q-Q annualized in Q3-16, but this may not be enough. Greece’s debt is projected to fall from 179% of GDP a year ago to 160% of GDP by 2030, “but become explosive thereafter.”
  • Proof that IMF is de facto world central bank: (1) Jeroen Dijsselbloem (Dutch FM, one of four presidents of the Eurogroup) warned that the Netherlands will only support Greek bailouts if the IMF is involved.
    Source: VoxEurop.eu

    Source: VoxEurop.eu

    (2) There are four presidents of the Euro raj! (3) IMF’s Managing Director Christine Lagarde called on Greece to beef up its ability to collect and report economic data, to give the government, investors and other nations a clearer idea of the country’s performance (4) IMF wants Greece to implement more economic reforms, mostly in the form of austerity

  • What’s next? Eurozone fat-cat bureaucrats (Finance ministers) are due to meet on February 20th to discuss the crisis!!
  • Frank Hollenbeck’s Misesean solution in 2015: (1) Exit the Euro zone, (2) implement true austerity (The “15th and 16th month” salaries alone for these employees in 2011 cost taxpayers €9 bn), (3) implement true free-market banking reform (including charges-based warehousing bank, and a 100% equity-financed loan bank), (4) let circulate the Euro and other fiat currencies, though institute the Drachma as government-sponsored currency, (5) Link the Drachma to Gold to institute real financial discipline in banking

Recommended readings:

Five Steps to Fixing Greece’s Debt Problem >> Mises.org (Apr, 2015)

Greece’s Biggest Problem Is Its Anti-Capitalist Culture >> Mises Daily (Aug, 2015)

An “Austrian” Economist’s Advice for Greece and the EU >> Richard Ebeling (Jul, 2015)

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