Euro Debt Contagion

Despite all the assurances from the IMF and the EU that ‘Everything is fine, Greece is going to be bailed-out, reprimanded, forced to make cuts that would make your gonads shrivel and made to write out 64 Billion times, ‘I shall not lie about my debt”, despite all that, today the yield (the interest rate ) on Greek two year debt shot up by 3 percentage points to become the highest rate in the world.

Effectively Greece today can no longer borrow. The bond market shut the door in their face. Its bail out or bust.

Which will it be? Well the markets are pricing in the belief that, despite a bail-out at some time in the nest few weeks IF the Greeks can bend over far enough to spell out exactly how much flesh they are going to cut from their own people, ( Now THAT’S what I call a mixed metaphor) it won’t work, and Greece will still have to ‘restructure’ its debts. Restructure in this case means almost but not quite default. They will put off paying what they owe to a later date and may also pay only some fraction.

But all this is not why I am writing.

Do you remember the LIBOR? You remember we used to hear all about it back in the height of the crisis. ‘Libor at all time high’. ‘Banks won’t lend’, ‘Can’t get funding’. ‘Oh me , Oh my. Save us – bail us out, or it will be the end of our – Ooops sorry, Your world’.

Don’t hear about Libor now do we. WHY NOT?

Easy. Back then, when the decision to bail out the banks and NOT force any of their bad debts out into the market, but allow them to be hidden off-balance sheet, in accounting mumbo-mark-to-model jumbo and in central banks as pledged collateral – back then, some of us said, ‘this will not make the bad debts or the danger they create, go away. It will merely shift it to nation states and their debt levels’.

Were we right? Well, we hear no more of Libor because the banks now have plenty of cash. Ours. Now theirs. BUT aren’t we hearing a lot about national debt levels? Aren’t we hearing how they are suddenly rather high and need to be brought down? Aren’t we also suddenly seeing NATIONS not being able to borrow?

It’s no longer LIBOR the interbank lending rate which is spiking through the roof. Its the rate the bond market charges nations.
Greece has such whopping debts – not just sovereign debts, but all the debts of their rotten banks weighing on them too, that Greece now has to pay 13.14% on its two year debt. That’s 12% more than Germany. What’s your mortgage rate? What is the LIBOR rate? London Libor is under one percent.

Libor under 1%. Banking crisis ‘over’. At least officially. But let’s just see shall we. But meantime Greece is sunk.

And it’s not just Greece. TODAY, while Greece died, Portugal’s two-year bond yields rose three-quarters of a point to 3.64 per cent, Ireland’s jumped about the same amount to 2.99 per cent and Spain’s also rose a quarter of a point to 1.87 per cent.

I say ‘rose’, but interest rates/yields on national debts should rise and fall by mere hundredths of a percentage point. When bankers talk of ‘base points’ that is what they mean:1/100th of a percent. That several nations saw the cost of their short term debt go vertically up by 25 base points is not good.

We no longer hear of LIBOR because exactly as warned about two years ago, the debt crisis no longer belongs to the bankers it belongs to us. We bought it off them. Lucky, lucky us.