Greece – The Bond Market’s Bear Stears

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Bear Stearns threatened to bring down the financial system. That was the explanation why  it was rescued by a discretionary, last minute action. Not ideal, but a so called must.

Greece threatened to become the Bear Stearns for the worldwide sovereign bond markets. So Germany stepped up and plans to provide last minute, discretionary life support. That will of course not mean that Germany decides anything. Under the weak, or let’s say, non existing leadership, of communist Angela Merkel, this help might only be verbal assurance. Merkel is not Sarkozy and this could become an issue for the international bond markets.

Here a short political excurse:  Sarkozy stepped up during the European presidency and coordinated the decisive rescue packages, needed to stabilize the meltdown of the financial system in Europe. This was a tremendous difficult task as he had to get all of the different political and independent European opinions under one hat within a few days. And he had to get them to agree and implement action plans by the same, very ambitious time. Back in 2008, the Union celebrated the strength of its leaders, but many got worried for the time when Sarkozy handed over the presidency.

Today, Sarkozy’s leadership is missing within the Union. The leader of the Euro Zone’s strongest economy, Angela Merkel, does not provide guidance for which she is criticized widely even by her own party. And European presidents Zapatero and discretionary selected and therefore unknown Herman van Rompoy (or however he is spelled) are widely unknown in the European Union. They are weak political leaders. This reveals yet another issue within the European Union. Weak countries’ leaders cannot lead the union in times of crisis!  Do not expect Spain and Greece to lead out of the crisis. The best they can do is - not making it worse!

However Merkel’s declaration of rescuing Greece, might be enough to push Euro short sellers out of their positions and to preliminarily stabilize the conditions.

Looking back, then we see that the market has now realized the opportunities are in shorting governmental debt. They will not step back after having made already huge amounts of money by betting against the PIGS. Now they will just look for more dirt to surface, as it did with Lehman. The investment bank came under scrutiny of investors and short sellers. And when the numbers the investment bank published did not match, the end was obvious. Lehman failed , so will countries around the globe.

The next targets might be the UK, Italy and Spain. All of which are too big to be bailed out. The only way to avoid the upcoming disaster would be market suspension in the CDS markets. But most likely it is too late to do so.

tags:Sarkozy, Angela Merkel, Germany, Greece, PIIGS, PIGS, Italy, Spain, Euopean presidency, Bail out, rescue, Euro, bond markets, bond collapse, currency, short sellers, investing, Lehman, investment bank, CDS, markets,