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"George Papaconstantinou, the finance minister, plans to lead a roadshow to America in the last ten days of April. He hopes to persuade American investors, including emerging-market funds, to buy $5 billion-10 billion worth of a new dollar-denominated bond. It would be a heavy irony if Greece, a member of the euro club, were temporarily reprieved by loans in dollars. But the fear is that investors will stick to buying the bonds of genuine emerging markets, which have much more solid growth prospects.
It is not yet clear what Greece’s fallback plan will be if American demand is weak. “The roadshow will be decisive. If it doesn’t fly, the alternative is either a wave of T-bill issues at very high interest rates, or a rescue package,” says a senior Greek banker. Mr Papaconstantinou insists that Greece does not plan to fall back on support from the EU and IMF. But he also accepts that the government cannot go on borrowing at such high interest rates."
I found this article very interesting especially where they concluded that Greece’s public debt would stabilize above 150% of its GDP. I believe Greece is in trouble. Assuming they do not default and find a means I am pretty pessimistic with the situation. I do not think that American investors will have very much confidence while the "roadshow" is taking place. Buying up their debt could mean profitable returns but there is no confidence and other plans to avoid default do not look great. I think they will end up needing a large bailout package and plans to raise the interest rate could give them problems. I agree that borrowing on high interest rates could cause further issues.
ReplyDeleteThe more I read about the financial situation in Greece, I'm reminded of the "this time is different" fallacy we read about in class. By burying his head in the sand Papaconstantinou is truly doing his country a disservice. I'm surprised the people of Greece have not pushed for more aggresive action to help their debt crisis. Unless there is a radical regime change I personally believe Greece will inevitably default.
ReplyDeleteI have to agree that American investors are probably not going to buy into these Greek bonds. There just seems to be no clear path, just speculative and vague ideas. Nothing that I have heard about there plans makes a lot of sense to me. I agree that default is probably a very likely outcome.
ReplyDeleteI also think that American investors will be very skeptical to take such a risk. The fact that this crisis could set in motion a break-up of the eurozone is warning enough to stay away. If that were to happen investors would lose big as the less powerful countries in the union would be devastated. Maybe it's because we're used to hearing about bailouts in the trillions here in America...but 30 billion euros does not seem like a lot of money to save a country from crisis.
ReplyDeleteI think Ryan makes a good point regarding the potential break away from the European Union being the demise of Greek bonds. The confidence of the American people is definitely low due to the recession and thus many aren't even investing in domestic companies. It seems hard to believe that American's are going to invest in a country that is more risky and unstable.
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