The (Abridged) Story of Greece

From 1996 - 2008, the Greek economy expanded faster than the broader European Union in each and every year (below is all the data I could dig up for a chart).

But, growth is a good thing right?

In most cases... sure, but all growth is not the same. Growth based on ever-expanding debt (think housing bubble) is surely not as good as one based on increased productivity. While there is no doubt that a lot of Greece's growth was due to increased productivity that came with being a member of the EU (i.e. open markets), a lot of this growth came from cheap financing which not only allowed the Greek economy to double within a 10 year period, but to double their debt levels as well.

This arrangement of growth and ever-increasing debt was all good... until it wasn't.



When the Greek economy turned south during the crisis, debt to GDP levels spiked as debt continued to grow, but the underlying economy didn't. When banks realized they all owned a boatload of this debt (as well as debt of other periphery nations in similar situations as Greece), they shunned further purchases.

Why? It turned out that the Greek economy that only grew in one direction (and faster than Europe as a whole), was loaded with debt and wasn't actually growing.

Source: Haver

A Greek Tragedy

Money CNN details:

The yield on Greek bonds soared to record levels again, a day after Standard & Poor's slashed its debt rating on the country to junk and amid reports that the IMF is considering more loans to the beleaguered country.

The yield on 10-year Greek bonds surged to 11.24% early Wednesday from 9.68% on Tuesday. The yield is the highest for the 10-year since the introduction of the euro in 2002.

The jump in the yield on the Greek bond has led to an enormous spread, of 8.22 percentage points, compared with German bond yields. The yield on the German 10-year bond, considered the European benchmark, slipped to 3.02% early Wednesday.

Source: BarCap

The Greek Blow Out

Bloomberg details:

The yield premium investors demand to hold the nation’s 10- year bonds rather than German bunds climbed to more than 600 basis points after the Financial Times cited German Finance Minister Wolfgang Schaeuble as saying Greece must firm up plans for deficit reductions in 2011 and 2012, and not just for this year, to qualify for aid. Citigroup Inc. said a reorganization of the debt or need for extra support looks “unavoidable.”

The 10-year Greek bond yield jumped 78 basis points to 9.58 percent as of 11:30 a.m. in London. The 6.25 percent security due in June 2020 slid 4.34, or 43.40 euros per 1,000-euro ($1,333) face amount, to 78.86. The two-year yield jumped 300 basis points to 13.96 percent, after soaring the most on record to 14.66 percent.

Source: BarCap

Greek Borrowing Costs Soar

Bloomberg details:

Greek bonds dropped, sending the yield premium over German debt to the widest since the euro’s inception, and stocks tumbled on speculation that the bailout of Europe’s most indebted nation will unravel. The yen rallied.

The Greek 10-year spread to benchmark German bunds widened to 436 basis points at 8:15 a.m. in New York. Greece’s ASE Index of stocks slid as much as 5.2 percent, the most in four months, and the cost of insuring against a default by the nation climbed to a record. The Stoxx Europe 600 Index tumbled 1.1 percent and futures on the Standard & Poor’s 500 Index slipped 0.4 percent. The euro weakened for a fifth day against the dollar, and the yen advanced versus all of its 16 most-traded counterparts.

Source: Barclays Capital