Thursday, October 2, 2014

Ah, Those Ruthless Bond Investors!

"Greece discovers the ruthless nature of bond investors", this Bloomberg headline reports. Pardon me! Did anyone ever claim that bond investors were warm-hearted, relationship-oriented financial partners? If so, I have never heard of them.

Which raises the question in my mind why the current government is so eager to leave the official lenders and to return to the markets; the ruthless bond investors, so to speak.

One way to differentiate funding sources is by reliablity: there are stable and reliable funding sources and there are those which are reminscent of people selling umbrellas when the sun is out and disappearing from the surface of the earth as soon as the first raindrops arrive. Another way to differentiate funding sources is by cost. Typically, the more stable and reliable funding is more expensive while the 'hot' money may often be cheaper and less cumbersome to obtain.

With Greece's sovereign debt, the opposite is true. The stable and reliable funding comes from EU institutions and, as far as I know, it accounts for almost 80% of Greece's sovereign debt by now. Its cost, if I am not misinformed, is 2% at the most; perhaps even closer to 1,5%. The cost of the anonymous bond money has been down to 5% earlier this year, albeit only for a 3-year tenors. 10-year bond money, which is still rather short-term, would probably cost today 6-7%.

Somebody needs to help me out with logic: there is 2% stable and reliable money available but the current government does everything it possibly can to switch to anonymous bond money for shorter terms and at 5% more cost? There must be a reason for doing that except --- I can't fathom it!


  1. Mr. Kastner, to put it in another way. Greece is at a point where social patience has expired. If SYRIZA puts a referendum "kick out the troika even if means to return to drachma or keep the troika and the debt forever so we can keep euro", i am confident that the "kick out the troika" will prevail. The other day, Klaus Regling, said that he isn't of the opinion that Greece needs any debt restructuring at all. This was a coup de grace for Samaras. Samaras has passes all the last year, saying on tv "patience, we take our measures, but then they will keep their promice and do debt relief". If the Europeans, who, for God's sake, serve their interests and do well to do so, "backstab" Samaras like this, poor man, his political career is over.

    Fact is, the people are so tired of listening Samaras saying "success story", more recently Schauble saying the same, Merkel saying "the great steps forward" etc and that "the light out of the tunnel is now visible", only to have the debt 50% higher than before "being rescues", their sons/daughters without job, their income barely enough to live, their heating shut off in winter and they will vote SYRIZA, simply because "they don't care anymore what will happen, simply because when you end nowehere, you change road".

    So, what do you expect Samaras to say? "Troika forever! Success story for another 10 years!" New Democracy actually wants to continue to exist after the elections. That is, without becoming PASOK of 5%.

  2. Here is the most recent one:

    Schaeuble: Greece’s rescue program was a ‘success story’

    Problem is, the population, having heard that before from Samaras, doesn't quite believe it! That's how you end up with SYRIZA. Will SYRIZA bring the success story? Of course not! But even if SYRIZA brings the country to default, it will be a "change" and at least, SYRIZA will be able to say "well, we all impoverished you, at least we did it , while cutting down the debt".

    You must also think of something. SYRIZA, up to a few years ago was a party of 4%. The idea of them seriously running the country, never crossed their minds. And i am positive they can't run the country in the current situation. And i think they know it too. This is what makes them more likely to make a "surprise move". While Tsipras seems to aspire in becoming a new Andreas Papandreou, if things don't go well, he will have the real left in his party (SYRIZA is nothing else, than the evolution in time of the KKE- esoterikoy, the KKE of the interior) taking the reigns.

    Some prominent SYRIZA members (with big influence in the party), still go out and say "haircut of the majority of the debt". And they mean it. They are ideologically polarized enough to pursue that, even if it means the annihilation of SYRIZA. The more "conservative" members (like Dragasakis) now speak of "freezing of the debt in the ECB", introduction of growth clause.

    Either way, SYRIZA, for me, isn't ready to continue an austerity without end. So, one way or another, the clash with troika will come. SYRIZA basically, wants, a part, if not all, the primary surplus, to become state investment.

    Samaras at this point, what does he have to fight against "hope"? More troika? Some of the things he has signed, bind Greece up to 2060. He has even signed that as long as he is in politics, he will not go against troika policy (it was a clause when he was in the Papademos goverment, Venizelos signed too).

    Either way or another, the situation in Greece is unsustainable politically as it is now. If Samaras tries to go on like this with the troika that comes every 3 months and cuts salaries and pensions, by 2016, there will be no PASOK or ND to speak for. Not necessarily a bad thing for Greece, but certainly bad for them. They need to show "where the success story is", because sure enough, there isn't in people's wallets or in employments rates.

  3. It doesn't really matter. Mario Draghi said today that he won't save Greek banks unless Greece follows dictated policy.

    Thus Greece will succumb, the upcoming Syriza government will succumb too, just like Cyprus succumbed.

    Only when a member will be prepared to re-adopt a national currency they won't succumb to Frankfurt.

    Until then, let's watch the big boys play this out (Germany, France, Italy).

  4. Greece should re-adopt its own currency. The sooner the better.

    There is still a pent up savings glut in the world.

    After years of depression and de-growth (whatever you want to call it), Greece could, with its own currency, easily grow its economy.

    So it will likely have no trouble attracting investment, after removing euro shackles.

  5. Is my guess correct, that when Mr. Kastner wrote this blog he did already know the tenor of the answers?


  6. Klaus' comment is correct. What the Greek government is trying to do, it simply doesn't make sense. The reason is simple: only fiscal deficits would heal the balance-sheets of Greek households and businesses. Is the Greek government gonna be able to run fiscal deficits if it returns to the markets? No. If anything, it's gonna be even more constrained than it is now.

    Btw, this excellent article on Macropolis has all the necessary info on Greece's debt-repayments schedule, so everyone can reach to his own conclusions about how feasible Greece's return to the markets is.