Posted by: Dark Defender | December 10, 2008

Trouble in paradise?

Riots in Greece

Riots in Greece

As no doubt you are aware the EU model is the future and nation states like the US are an anachronism that will soon be swept away as we head into our glorious post-modernists future.

Err maybe not.. read this.  To whet your appetite

The underlying rot was disguised by the global credit bubble, and by the Greek property boom. It is now being laid bare.

Greece has a public debt of 93 per cent of GDP, well above the Maastricht limit. This did not matter in 2007 when bond spreads over German Bunds were around 26 basis points, meaning that investors were willing to treat all eurozone debt as more or less equivalent.

It matters now. The credit default swaps on Greek sovereign debt were trading around 250 today (compared to 52 for Germany, 62 for the US, 120 for the UK, and 178 for Italy). It has moved into a class of its own.

This is potentially dangerous because Greece needs to tap the capital markets for 40bn euros next year to roll over debt and fund the budget deficit, as well as 15bn euros or so in bond issuance by banks under the state’s new guarantee. This is a lot of money.

The Greek government will need budgetary discipline to convince markets that it has matters under control. But governments facing riots and imminent defenestration are not good bets for fiscal discipline. There is a general strike in any case on Thursday.


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