Awaiting a Greek bailout

Much of the market finally lost patience today with the umming ahhing, feet-dragging, and generalised incompetence of Europe’s multi-headed economic governance.

We face an epic moment in world economics, every bit as critical as the decision to bailout Bear Stearns, and then not to bailout Lehman Brothers.
 
“Sheer panic” was the reaction of one economist as market interest rates yanked up to the sorts of APR’s normally associated with American Express. One bond trader told me of funds that were desperately offloading Greek debt at 40 cents on the Euro (a 60 per cent discount for sovereign debt). 
It may be an overreaction. Surely the words of the IMF and of the European Union count for something?
 
Well, no. It’s February when we were first shown a bit of leg from the Germans and French on the likelihood of a bailout. We’re now in April, and there’s nothing concrete. May 19 is the key date when Greece will be obliged to go to the markets to refinance 8.5 billion Euros of government debt. At the moment there is no hope of raising these funds.
 
So is a cosmic game of chicken that Germany has played with international markets, hoping that nods, winks, hints, and rumours would be sufficient support for Greece. It is a game that failed with Standard & Poor’s downgrade of Greek debt to junk status.

The problem for Germany has got far more serious. Relying on the mere existence of an ambulance has not obviated the need to use that ambulance, indeed a fleet of ambulances now need to be prepared for the Club Med countries.
 
In developments described by the OECD boss as akin to the deadly Ebola virus, and the IMF boss as showing that “confidence in the [Euro]zone was at stake”, Portugal was obliged to offer extra austerity measures, and Spain too suffered a further credit downgrade.

If Greece is saved, will it merely end up being Bear Stearns to another country’s Lehman Brothers? If Greece was allowed to default, or effectively default through a rescheduling, then what collateral damage will be inflicted upon the Eurozone banking system?
 
It would be huge, which is why it is not going to be allowed to happen.

However the exigencies of Germany’s electoral cycle mean that various motions have to be gone through before a bailout is signed off, before 19 May. This will continue to cause havoc for days.

The European Commission’s team in Athens, agreeing yet more historic Brussels-imposed austerity, say “it’s a matter of days”. In the meantime the financial markets will be hugely choppy and other countries are in a sticky place. And then there’s the small matter of a giant financial crisis providing the backdrop to the UK election and likely hung parliament negotiations.
 
Yes Britain has a much longer mortgage term than many Eurozone countries.

But who would want to go to markets in these febrile conditions? There are two UK debt auctions planned during the time set aside for possible hung parliament negotiations. Tricky.