Greece Requests Bailout, Commentators See Ill Omens

Instability is spreading to other weak EU nations

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Greek Prime Minister George Pampandreou has formally requested the international aid offered by Europe last week. The bailout, then, will go forward. But will it save Greece? Business observers are skeptical: the yields on Greek bonds, indicating the level of risk associated with investing in the country, remain high.

  • Bond Market Meltdown Necessitated Loan, notes Peter Boockvar at The Big Picture. "The 45b of euros that will come their way will help in the short term but for the long term financial health of the country, it just bides time for an economy that will highly unlikely be able to grow out of their trouble and will at some point be back for more help."
  • And Prime Minister Just Trashed the Bonds Again  Business Insider's Vincent Fernando observes that Greek 10-year bonds were doing fairly well on news of the loan request, "yield dropping below 8%" until the Greek prime minister "started talking." A pessimistic address from him brought bond yields "back to 8.19%."
  • These Bonds Are Pretty Trashed, Period  "There is no longer any realistic possibility that Greece will be able to soothe debt markets with the mere possibility of assistance," writes The Atlantic's Megan McArdle. "Markets are pricing in the expectation of at least some debt restructuring, and well they might.  The loan packages will abate any liquidity problems that Greece is having, but they won't fix the structural solvency problem--and even a pretty austere austerity package is going to make distressingly modest inroads." Still, she points out that "some of the initiatives" being proposed, leading toward less corruption and more transparency, might make Greece better off in the long run. She concludes, "It's always darkest before dawn."
  • Instability in the Bond Markets Spreads to Other Nations  "The key event yesterday," argue Peter Boone and Simon Johnson at The Baseline Scenario, "was that the yield on all the debt of weak eurozone governments widened while German yields fell.  The spreads show all you need to know: a very clear and large contagion risk." This means the feared scenario is upon us: instability in Greece is spreading to other European countries, as many predicted. Boone and Johnson say new "liquidity assistance" packages will have to be put together for the new at-risk countries.
And this is the heart of the problem:  Will Germany and other European nations be prepared to provide the large sums needed to refinance several peripheral nations?  Will these nations then take the painful austerity measures needed in the midst of recessions in order to get out of this? ... Yesterday's action suggested that markets are not at all confident policy makers are going to stop this crisis soon.  They are surely right:  Greek strikes, a weak Portuguese government deeply in denial, and German hatred for bailouts, all make a path to restore confidence very difficult.
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