Monday, 16 March 2015

Political Risk + Risk of Grexit = Risk of Grexident

Greece is between a rock and a hard-place for yet another time! And it's not that long ago since the last episode in 2011-2012. This time, however, it's different. There seems to be an alternative to a negotiated agreement. The Grexident!

Today's relative and absolute risk, as measured by the spread of the Greek bond yields Vs EZ peers' (and not only the German bund) is peaking. In absolute terms, it's only comparable to August-September 2012. In relative terms, it has never been higher. This is indicated on the chart by the length of bracket (2) in a logarithmic scale.

For argument's sake, if Greece had not derailed, since last summer and notably since last fall, the Greek 10-year yield could have been trading at 2.00% (as indicated by the green line). This means that the Greek government could had access to markets at such low levels, while shorter maturities would had been trading even lower. This failure (to do so) is the combination of former government's inability to tackle the reforms needed to close the last review and exit the Programme and main opposition's, now the "new government", inability to assess the realities of the big picture.

There is, none the less, an educated guess, a feeling that this is not just a mare oversight of policy implications but rather a "Plan B". The re-introduction of a national currency (a new Drachma) that will allow the "new government" to regain monetary independence and exercise its Marxist-Leninist programme, away from the neoliberal policies of the Eurozone and possibly the EU.

At what cost? At whose expense, I wonder?