April-23rd Day of Reckoning for Greece

Greek Prime Minister officially declared Default !

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Greece can no longer hold-up its game against market powers. Today, the Greek prime minister asked the IMF and the EU for financial help as his country is finally unable to deal with the financial stress caused by a skyrocketing high debt burden and a faltering economy. The last ingredients were the 2% jump in yields on Greek bonds on April 22nd 2010, after Eurostat announced that the country falsified its financial statements , again. Greece is now officially unable to deal with debt-refinancing under normal market conditions. This is what we call default. The EU and the IMF now come in and will put drastic financial reforms into place. The markets will however continue to short Greek bonds. The country has lost trust and everybody knows that the EU bailout is only delaying the issue. And it is not a bail-out of the Greek government; it is a bail-out of German and French banks. It provides us another couple of weeks to deal with the fallout of the crisis. Behind closed doors we hear already talks on one or more new European currencies and it is likely that Europe and the Euro zone are not going to survive the Greek debacle. No one can take on the 900 Billion Euro Greek debt. That is the biggest issue. This week the pressure which mounted in the markets came from investors who tried to fire sale Greek bonds. But there are very little buyers. What seems to be an isolated, Greek issue, is much more. 900 Billion Euro in debt are suddenly devalued and someone holds this loss in his books. On top of that a significant number of CDS contracts will have to be adjusted and payments have to be made.It will be a costly default for insurance companies, banks and money market funds. Investors might now have learned that even developed countries can default. Silently they will use the Greek experience as a template for other countries, such as the UK and the US. Usually this learning experience takes about four weeks time. By then we will see new rules and requirements for government bonds coming from the investor side. The time of easy money seems to be over. With the Greek default the western economies have started to enter technical dynamics which are difficult to control. A fast rise of western bond yields is most likely the outcome. The shadow of Inflation is showing up on the horizon.