That’s true for most countries in the world right now, but likely more for Greece than anyone else. The quote above comes from Prime Minster Papandreou, who made an emergency speech last night. Just as Rob Parenteau forecast yesterday, the focus of the world has turned to the Greeks.
Pinned under a 12.7% budget deficit-to-GDP ratio, at monetary odds with other EU nations and recently targets of sovereign credit downgrades, Papandreou and his people are scrambling. Last night, he promised to reduce that same ratio to 3% (the limit under EU laws) by 2013. The plan: Cut spending where convenient and soak the hell out of the rich. Greece will soon have higher taxes, probably across the board, but most notable will be a 90% tax on bonuses in the financial industry and the introduction of a capital gains tax. Ironically, in the same breath, he promised to fight corruption and tax evasion, both crimes that will likely rise in the wake of more government confiscation.
Will it work? The market says no. The difference in yield between Greek and German bonds was 229 basis points before Papandreou spoke. Soon after, it was 252 bps.
“Some professional investors are already attracted to this widening spread in Greek and German bonds,” Rob Parenteau adds, “and they are finding encouragement from the restrictive policy measures announced in the past week or so. But it strikes us as too early to wade into the fray. We would not go so far as to predict Greece will default, nor would we go so far as to suggest the euro is about to come undone, but we do believe the pressures and the pushback that are going to be brought to bear on a number of European nations will put a serious question in the minds of investors who may have convinced themselves in recent months that the euro was a contender for snatching the reserve currency status of the U.S. dollar.”
Greece’s total debt to GDP ratio is currently over 112%.
Ian Mathias is the managing editor of Agora Financial's Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report, Agora Financial's flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He's also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he's not at work, you'll probably find Ian on a bicycle, racing up and down the "mountains" of Baltimore County. Ian has a BA from Loyola University in Maryland.
Addison Wiggin traces the DNA of the financial system’s next great crisis… It looms closer than you might think…
It's easy to lose your discipline when you've been waiting around all day with a rod in your hand and you finally get a slight tug on the line. Is it "the big one"...or a minnow? Many traders feel they're onto something big. And their aggressiveness can get them into trouble.
Addison takes a look behind the curtain during a seminal moment in The Daily Reckoning’s history…
A study published in the most recent issue of The Journal of Neuroscience was sparked by researchers who wanted to find out why cocaine addicts so frequently relapse despite sincere attempts to recover from their addiction. Stephen Petranek has more…
We recently had a conversation with our friend Chuck Butler -- editor of the Daily Pfennig and Managing Director of Global Markets at EverBank. We discussed U.S. fundamentals… China… special drawing rights… emerging markets… and more!
Manic phases in political history and stock history are compared and contrasted in this Memorial Day edition where we praise the people who fought in our wars.