Greece's New (Euro)Bond: Volume Too Low, Yield Too High

According to media reports, Greece successfully sold 3 BEUR new 5-year bonds which carried an interest rate of 4,375%. The bonds were offered at a small discount, thereby raising the yield to 4,620%. The issue was oversubscribed by a margin of 2:1.

Reviewing the media reports, one cannot help but get the impression that a major effort is being made to describe the issue as a great success. Was it?

Yes, the yield was slightly lower than the 4,95% yield which Greece achieved the last time it sold 5-year bonds (4,95% back in 2014). The government's conclusion is obvious: 2-1/2 years of SYRIZA governance increased Greece's creditworthiness substantially!

The yield of 4,62% is more or less the same as the yield on 5-year Icelandic paper. From that standpoint, one could argue that it is a fair yield because Iceland, too, had to overcome a major financial disaster and rebuild its creditworthiness. However, that comparison would not be appropriate for one reason: Iceland is not a Eurozone-country! As a result, Iceland does not operate with the implied support of the Eurozone.

Greece, on the other hand, operates with the implied support of the Eurozone. Even though that support was frequently severely tested since 2010, it seems fairly obvious by now that the Eurozone is not going to walk away from Greece. From that standpoint, one could consider Greece's new bonds as a Eurobond of sorts.

Germany's 5-year yield is currently a negative 0,16%. Is a yield difference of nearly 5% between Germany and Greece really justified when one considers Greece as a Eurozone risk of sorts? Definitely not! Are there any obvious reasons why the markets would not consider Greece as a Eurozone risk of sorts? Hardly! Particularly the events of 2015 have shown that the Eurozone simply does not have the backbone to walk away from Greece, even when people like Yanis Varoufakis literally defy the Eurozone to do just that.

So why was the new bond issue at such a high yield not oversubscribed by a ratio of at least 20:1? At a time when it is difficult to find First World countries yielding above 1%, why wasn't there a run on a sort of Eurozone risk Greek bond yielding 4,62%?

Less than 2 months a ago, the Greek industrial group Mytilineos raised 5-year debt at a yield of 3,1%. Why would the Greek state have to pay so much more than a Greek private borrower?

A few weeks ago, someone invited proposals on twitter at what yield Greece would issue 5-year bonds. I submitted "below 3%", thinking Greek sovereign risk would yield slightly less than Greek private risk. That's what logic would have suggested to me. That's what I would have considered a success.

The markets did not behave on the basis of my logic. There was something which the markets obviously did not like very much about this bond. Was it the timing? Or was it perhaps more doubts about the Eurozone's implied support than I would have?

It will remain the Greek government's secret why they think that borrowing from the markets at 4,62% is so much more attractive than borrowing from the Eurozone at near-zero rates. Perhaps they wanted to surprise the world with a smashing success.

A smashing success this was not!

Some Interesting Debt Issues

This article from the Ekathimerini suggests that the Yanis Varoufakis who had just become Finance Minister was quite different from the Yanis Varoufakis who had been seduced by fame only a few months later. The article quotes a document which Greece had submitted at the February 16 Eurogroup meeting (February of 2015, that is). In it, views were expressed by the Greek side which were reasonable and appropriate. Here is an excerpt:

"In this document, the debt-to-GDP ratio is calculated in terms of net present value and estimated at 135 percent. The document dating from just three weeks after the elections – and repeatedly citing the head of the European Stability Mechanism, Klaus Regling – states in a special appendix that: “The misunderstanding regarding Greece's solvency is owed to the fact that the blunt 175 percent debt-to-GDP number does not fully describe the actual burden of public debt over the Greek economy.” The borrowing conditions of the European Financial Stability Facility (EFSF) as well as Greek Loan Facility (GLF) loans (the latter being the bilateral arrangements of the first bailout) are characterized as highly concessionary."

I should add that in my communications with Varoufakis prior to his becoming Finance Minister, we had exchanged views along the same lines and I felt confident that he would pursue negotiations along these lines. Well, somewhere along the lines there was an abrupt personality change!

On a separate front, Bloomberg reported that the reason why Greece had to shelve the idea of returning to the markets with a new bond issue was that it would have exceeded the debt ceiling set by the IMF. Presumably, there will be a bit of an uproar about the fact that the IMF would restrict, prohibit and/or disable Greece from borrowing in international markets.

The uproar would not be justified. It is only natural that the creditors would put a ceiling on total debt which their borrower can accumulate. According to Bloomberg, Greece's creditors do not allow the country to increase its indebtedness beyond the levels set out in the program. The program provides for enough new funding to refinance maturing debt. If Greece can secure funding for the refinancing of maturing debt from third party sources, the creditors would be more than happy but then they would reduce their commitments in a corresponding amount. 

Social Justice: Greece Ranks #28 Out Of 28 EU Countries!

The German Bertelsmann Stiftung surveyed all EU countries for the level of social justice. The 6 criteria measured were: poverty, education, labor market, health service, intergenerational solidarity and civil cohesion & non-discrimination.

Greece ranks #28 out of 28 EU countries.

The Spanish "El Mundo" On The Blind Arrogance Of Yanis Varoufakis

Below is an absolutely outstanding analysis of Yanis Varoufakis and his accomplishments as Finance Minister of Greece from the Spanish "El Mundo". Regrettably, I cannot find an English translation.

Adults in the Room: The blind arrogance of Varoufakis

The 'Few' And The 'Many'

I would tend to agree with the following conclusion of this FT article:

"Of course, some Greeks are doing just fine. My motorcycle friend and I ended the evening dining in a packed rooftop taverna in a middle-class suburb. The richest Athenians have had “a nice crisis”, says Paris Mantzavras of brokerage Pantelakis Securities. They just take care not to flash their cash like before. Alexander Kitroeff, historian of Greece at Haverford College in the US, sees the country becoming almost Central American: the once solid lower-middle-class of pensioners, lower civil servants and small shopkeepers is disappearing, leaving only rich and poor. Ten years ago, Greece imagined it had become northern Italy, but it has since discovered it’s more like Bulgaria. Try shedding your fantasies to accept that."

During the 4-5 months we spend in Greece every year, we are moving mostly in the circles of the 'few'. And most of them still have a very good life, even if they don't flash it as much as before.

But we obviously also see the 'many' and whenever I see them (or read about them), I get the sense that fairness is not an outstanding value in Greek society.

DiEM25: "All Men Will Become Brothers!"

Extraordinary developments are taking place at DiEM25, Yanis Varoufakis' Democracy in Europe Movement 2025: a writer, media theorist and media activist by the name of Franco Berardi informed Varoufakis by letter that he would resign from DiEM25's Advisory Panel and Varoufakis answered that DiEM25 would not accept his resignation. The final outcome of this battle is not yet known.

Berardi's letter of resignation is quite extraordinary and I reproduce it below:


Dear Yanis, dear friends and comrades of the Democracy in Europe Movement 25,

After the shameful decisions of the Paris meeting of Minniti Collomb de Maziere it’s time to understand that there is something flawed in our project of re-establishing democracy in Europe: this possibility does not exist.

Democratic Europe is an oxymoron, as Europe is the heart of financial dictatorship in the world. Peaceful Europe is an oxymoron, as Europe is the core of war, racism and aggressiveness. We have trusted that Europe could overcome its history of violence, but now it’s time to acknowledge the truth:

Europe is nothing but nationalism, colonialism, capitalism and fascism.

During the Second World War not many protested against deportation, segregation, torture and extermination of Jews, Roma, communist militants and homosexuals. People had no information about the extermination.

Now we are daily acquainted about what is happening all around the Mediterranean basin, we know how deadly is the effect of the European neglect and of the refusal to take responsibility for the migration wave that is a direct result of the wars provoked by two centuries of colonialism.

The Archipelago of Infamy is spreading all around the Mediterranean Sea.

Europeans are building concentration camps on their own territory, and they pay their Gauleiter of Turkey, Libya, Egypt and Israeli to do the dirty job on the coast of the Mediterranean Sea, where salted water has replaced ZyklonB.

To stop the migratory Euro-Nazism is going to build enormous extermination camps. The non-governmental organisations guilty of rescuing people from the sea will be contained, downsized, criminalised, repressed.

The externalisation of the European borders means extermination.

Extermination is the word that defines the historical mission of Europe.

Nazism is the only political form that corresponds to the soul of the European people.

In the last twenty-five years (since when, in February 1991, a ship loaded with 26.000 Albanians entered the port of Brindisi) we have known that the great migration had began. Two paths were possible at that point.

Opening its borders, starting a global distribution of resources, investing its wealth in a long lasting process of reception and integration of young people coming massively from the sea. This was the first path.

The second was to reject, to dissuade, to make almost impossible the easy journey from Northern Africa to the coasts of Spain Italy and Greece.

Europeans have chosen the second way, and they are daily drowning uncountable children and women and men.

Auschwitz on the beach.

With the exception of a minority of doctors, voluntary workers, activists and fishers, who now are accused of being the abetters of illegal migrants, the majority of the European population are refusing to deal with their own historical responsibility.

Therefore, I declare that I’m not European anymore. And I declare that I have never been European.

We have naively expected that an alliance of British murderers, French killers, Italian stranglers, he German slaughterers and Spanish slayers could give birth to a democratic peaceful friendly union. This pretence is over, and I’m sick of it.

Five centuries of colonialism, capitalism and nationalism have turned Europeans into the enemy of the human kind. May they be cursed forever! May Europeans be swept away by the storm they have generated, by the weapons they are building, by the fire they have ignited, by the hatred they have cultivated!

Because of the aforementioned reasons I must renounce the honour of being part of the Advisory Panel of DIEM25.


Many Marxists seem to have one thing in common: their readers/listeners get the impression that Marxists are in need of psychotherapy. What other conclusion can one derive from Berardi's above musings? 150 years after the first publication of "Das Kapital", a work which Marx originally called "that economic shit" in a letter to his friend and partner Engels, one gets the impression that people like Berardi are intent on making sure that Marx's initial assessment of his work remains valid.

Berardi solemnly declares that "I'm not European anymore. And I declare that I have never been European." Again, a trait which many if not most Marxists share: deplore the way things are but shy away from outlining specifically how "opening its borders, starting a global distribution of resources, investing its wealth in a long lasting process of reception and integration of young people coming massively from the sea" would work.

To simply sing that "all men will become brothers wherever your tender wing remains" just doesn't seem good enough.

Bail-Out Tranche Will Arrive On Monday... And Will Leave On Monday!

The heading of this article is a bit sarcastic. Of course not the entire 7,7 BEUR which Greece will receive on Monday will leave on Monday. A grand total of 800 MEUR will actually stay in the country, allegedly for the repayment of state arrears to suppliers and tax payers. At least that is the intention (or mandate) of the ESM. It might be an idea to check whether it actually gets done.

This routine of pushing the can down the road always reminds me of Argentina's Economy & Finance Minister in the early 1980s, Bernardo Grinspun. Grinspun was a totally unconventional minister who simply had no time for the games bankers play. The establishes rites of international finance (avoiding default, keeping the ball rolling, etc.) never really found a place in Grinspun's attention span.

The game was the same as the one now being played out with Greece: disburse new loans to pay off existing loans; make the disbursement into an escrow account which is beyond the country's control; make sure that none of the disbursed money bypasses the recipient banks and stays in the country.

In one meeting with foreign bankers which I attended, Grinspun said something like the following:

"Make an escrow account and run all your lending/repayment transactions through it. If you want to disburse new loans to repay yourselves maturing loans, fine with me. If you want to disburse new loans to pay yourselves interest, fine with me. Just don't bother me with it!"

Perhaps the Greek Finance Minister should take a page from Grinspun's book!

"Greeks Are Interested In The Eternal And Not The Contemporary!"

Below is an interesting exchange between two passionate commentators in this blog.


Statement
Anonymous can be rather annoying to listen to, but it is still useful. He expresses the opinions of many Greeks, the opinions they don't tell you to your face. It may not make you understand why, but it can make them more predictable to you, how they tick, what buttons to press.


Response by Anonymous
I wouldn't put it this way. As a general rule, we Greeks don't know what we want because if we don't then our enemies don't know either what we want and therefore they can not block us from having it. There is also the added benefit that if we "don't know what we want", then we can not be traitors to our country, like for an example an Austrian who knows exactly what his country wants and volunteers to tell us (at that point we can do some serious harm to Austria). We grumble continuously: nothing is satisfactory but yet again this is a nice method of passing information to each other without risking imprisonment or death (because we all grumble, therefore we are all guilty of the crime of being never satisfied and we can not be persecuted for such). This is where you foreigners fall into the trap. You hear Greeks complain about this, that and the other and you say "let's help these people fix it". But that's the thing: you can't fix it. Otherwise we lose this important protection of not displaying what our true intentions are and we become conquerable. And if we become conquerable then our fate is assimilation and extinction. The point is this: after thousands of years we are still here, we speak a language that is hard for a foreigner to understand and we don't want to have a Kratos (in other words an oppressive state) to dominate us which some of you gentlemen consider being the utmost good (a well-run state). That's why I have tried to warn you many times that you are wasting your time with us because whatever the cost we are determined to outlast you. This is our survival kit and has worked fine with the Romans, Byzantines and the Turks. Compare to the Greeks, Germans, Austrians and the like are simple footnotes - we know for sure how to outlast you.

So the bottom line question here is what exactly are you observing? We will never be clear as to what we really want; you will never understand what we really want and therefore you would be unable to give it to us. All you are going to get in the end is a lesson which I am not sure is applicable to your circumstances and daily lives.

Each Greek you speak to has many different opinions, none of which expose the core of our existence. They are a form of making conversation, or part of humanity if you wish.

None of our political parties are focused on our eternal strategy. They are only concerned about social trends and economics which are the most anti-Greek things because by definition Greeks are interested in the eternal and not the contemporary.