Saturday, January 23, 2010
Greece – it’s the Eurozone’s black sheep. If this isn’t a Hail Mary, I don’t know what is: Greece Plans Bond Issue Soon. From the Wall Street Journal:
Greece said Friday that it plans to syndicate a five-year benchmark bond next week to address renewed market jitters over its ability to finance its giant budget deficit, even as yields on Greek debt hit a new high. The bond, long awaited by market participants and seen as a key test of Greece's ability to attract investors, will raise between€3 billion and €5 billion, the head of the country's debt agency said. But Greece is in good company – the so-called PIIGS (Portugal, Italy, Ireland, Greece, and Spain). In fact, the low saving is broad-based, with net national saving – net national saving is an aggregate measure of saving, including private and public sectors – being the lowest in Portugal, –6.9% of gross disposable income on average spanning 2007-2008, and highest in Switzerland, +13.9% over the same period.
This differential of saving patterns across Europe, i.e., Germany saves and Portugal does not, stalls any sort of bailout talk - technically, the Maastricht Treaty prohibits inter-government bailouts. However, if Greece’s Hail Mary bond issuance doesn’t work, something’s got to give. Marshall Auerback offers an interesting solution.
Greece is simply the first in a long line of European (worldwide, actually) countries that face fiscal consolidation (see two FT articles by Martin Wolf, here and here).
So we wait and see.