THE GREEKS WERE EARLY in so many areas — republicanism, competitive sports, spinach-and-feta omelettes. There’s a chance that recent action in Greek government bonds is offering an early glimpse at the anxiety that could attend the eventual withdrawal of central banks’ "extraordinary efforts" to lubricate the capital markets.
Spreads on Greek government bonds have blown higher, far beyond anything experienced in other European sovereign-debt markets. As the European Central Bank has made noises about unwinding some of its support programs, Greek government debt has been sold off hard, largely by Greek banks, which own a lot of it and have been posting it as collateral to borrow from the ECB.
Greece’s finances are about the most overextended in the EU. Its fiscal deficit this year is projected at 12.7% — almost the same as the U.S., incidentally.
This action is probably best placed in the Worth Noting file, rather than the Panic Now dossier. And it’s an illustration, perhaps, of why the U.S. Federal Reserve is likelier to err on the side of slow, rather than pre-emptive, withdrawal of its heroic liquidity programs.
About Greece’s economic situation:
(…) As the country’s budget deficit swells, its sovereign credit rating has come under renewed threat. That has encouraged speculation that Greek government bonds might soon no longer be accepted as collateral by the E.C.B., or might only be eligible at a higher cost.
All of this has unsettled investors, who marked down the price of Greek bank shares early this week and are again demanding a bigger premium to hold the country’s debt.(…)
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