Greek Debt Crisis: Worse and Getting Worser

Oh, the bitter irony…

The Parthenon – a temple to Athena, first used by Greeks as a Treasury – was the site of the latest bout of Greek debt protests over the weekend. The government had to close the place down to tourists (its No. 1 source of revenue…brilliant).

As we’ve noted before, the Greek debt crisis refuses to go away. And with civil servants protesting every day of the week while Spartan 10-year bond prices zip over 12-year highs of 9.7%, we doubt it will settle down anytime soon…even with a European Union/IMF bailout.

In fact, the whole saga is getting worse, fast. Here’s the easiest way to tell that story:

Greek 2-Year Bond Yield

Greek short-term financing costs have nearly doubled in the last week alone, and they’re still soaring today… The 2-year note is up to 14% as we write.

Pakistan can sell its debt for a lower rate than the Greeks (12.2% this morning).

“This will be the biggest story of 2010,” notes our macro adviser Rob Parenteau, “but Wall Street economists and investment analysts will be the last to really get it. The European Monetary Union had several design flaws from the get-go.

“We presume the path of least resistance will be a maxi-depreciation of the euro, on the order of another 20-30% decline in the exchange rate of the euro.”

Say again: A 20-30% euro crash.

“It begins, but does not end, with Greece (actually, it began with Latvia and Ireland, but that is another story). Band-Aids to save Greece, no matter how graciously offered by the legitimately concerned German politicians, cannot and will not paper over the cracks in the rest of the peripheral eurozone nations – which we will refer to as the GIIPS, since that seems to be the more politically correct version of the more porcine moniker.

“The math of the fiscal balances in the GIIPS is such that partial default or partial public debt renegotiation is all but inevitable. We would not touch GIIPS’ public debt until this becomes evident to more professional investors and until the potential haircuts (principal reductions) can be plausibly quantified.

“All else on the way to public debt default is shadowboxing, mostly for public political consumption only. IMF or eurozone loans or fiscal assistance only accomplish the extend-and-pretend wash/rinse/repeat cycle we have seen policymakers turn to one too many times during the recent financial and economic crisis.”

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning