If the purpose of last week's agreement between the EU leaders, Germany and France, to involve the IMF in any Greek bailout was to assist the Greek Government in bringing down its borrowing costs it has emphatically failed. The Greek 10-year bond was listed on Bloomberg at 6.528% (4:50 pm), its highest in over four weeks (February 25th 6.661%). The spread over the German Bund was 344 basis points also the widest in over four weeks. At the close of the EU summit on Friday, the Greek 10-year had been paying 6.202%.
The statement of the European leaders at the summit that the Greek rescue arrangements were set up to be a last resort and it was their hope that they would never have to be used, seems, at best, to have been counterproductive. Such equivocation is certainly not the route to market confidence. Europe has been talking for more than three months; the need is for a 'show me the money' moment.
Perhaps bond traders have noticed that the purported agreement came without governmental mechanisms, funding, execution specifics or IMF details. The aid package of IMF and EU loans would be triggered only if Greece had no other funding options. Who or what defines the no other option situation is unknown. Greece has so far been able to find buyers for its debt. It is a matter of the premium that it must pay that is the question not the sale itself. The Greek Prime Minister has said that Greece cannot afford to pay the rates demanded by the private market. That assertion will soon be tested if the Europeans cannot put deeds behind their words.
Chief Market Analyst