Tahoe is Walking On

Global Finance, Energy and Environment: News, Views, and Stories of Interest

Monday, June 27, 2011

The Death of The Euro (RMB)

Text Box: Greek Tragedy ü Greek debt is simply too big to pay off – the question is not whether Greece will default on its obligations, but when. Last year’s $160 billion bailout wasn’t enough and another $100 billion this year won’t be either. Greece owes too much and has to pay too much to borrow. Bailouts simply kick the can down the road. ü Greek bonds have priced in a 75% probability of default – two-year Greek notes yield an incredible 26% (as we write this), which is 19% full percentage points more that German debt of the same maturity. Ten-year Greek bonds yield 18%, which is 15% more than their German counterparts. The market is telling us it expects a default. ü Greek rates are too high to refinance – the big problem for Greece is refinancing. It needs to borrow money to pay off debt that is coming due now. Borrowing at current rates (see above) just digs a bigger hole. ü Enforced austerity robs revenue and damages economic output – the very austerity demanded by borrowers damages the Greek economy, drains future revenues to make future bond payments and is self defeating. ü Contagion – a Greek default by itself would cause big banking disruptions. Should it spread to Ireland, Portugal and Spain, it could make Lehman’s demise look like a walk in the park.
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Posted by Tahoe at 11:12 AM
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Tahoe
An Avid Futures and Market Trader, and an Accomplished Environmental Professional - full of irony and contradiction. I am walking forward on intuitive improvisation.
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