Eurozone Governments Blame Greek Debt Crisis on Speculators Instead of Looking in the Mirror
Politics / Euro-Zone Mar 10, 2010 - 02:37 AM GMTBy: Nadeem_Walayat
The heads of Germany, France and Greece are continuing to highly vocally blame financial speculators for Greece's debt financing woes. This clearly amounts to political propaganda in an attempt to ms-direct the eyes of their electorate away from those culpable in bringing the crisis about against rising debt financing and insurance costs which is a SYMPTOM of the crisis and not its cause.
The problem remains in that uncompetitive countries such as Greece are unable to either devalue or print money to inflate their way out of their respective debt crisis as a consequence of the huge public spending deficits of as much as 12% of GDP. That is the REAL reason for crisis deepening amongst the PIIGS, and NOT because of financial speculators that are being perceived as being responsible for driving up Greek bond yields and credit default spreads (insurance), when all that is happening is that the market is pricing the bonds on the basis of the risks posed as a consequence of the government debt to GDP ratio and the ongoing public sector deficit which ensures a continuous stream of new debt issuance.
The rise in the yield demanded to finance Greek debt is a direct consequence of Greece lying to European Union, markets and their electorate as to the true extent of the outstanding debt and the annual budget deficit for many years. Which amounts to fraud, but instead of a criminal investigation into the epic fraud, the Greek and other Socialistic politicians are attempting to ms-direct public anger to the markets / speculators for selling debt that is high risk.
Greece presents a greater risk of default precisely because of the fact that the preceding Greek Government were a bunch of liars that hid the real extent of Greek debt for many years, where instead of limiting deficits to 3%, Greece had been running deficits of as much as 10% per annum, and therefore instead of having a debt to GDP ratio below the 60% limit, Greek debt stands at approx 135% GDP. It is this that is resulting in the markets demanding a higher yield for the higher risk of a country that cannot control government spending, which ultimately sows the seeds of a Greek debt default to some degree.
Greece's current situation of not being able to print money or devalue whilst being forced by the market to pay high interest rates is DEFLATIONARY, and it is not something that the Greek government can sustain i.e. the Greek government would collapse in a deflationary environment, which ultimately implies that something has to give, and that is for Greece to enact an inflationary policy which can only occur if a. Greece devalues its currency (which it can't), b. Greece defaults on its debts (which it might) and c. Greece goes on an money printing spree (which it can't),
As the in depth analysis contained in the Inflation Mega-Trend ebook indicates, ultimately governments will not allow for deflation and the easiest way to ensure this is by printing money, therefore the Eurozone will print money that will be handed to Greece, a policy which will ultimately be applied to the other PIIGS and even the likes of France (debt at 80% of GDP), which ensures higher future inflation, in advance of which the Euro is already depreciating against other major currencies.
So, no the speculators are NOT to blame, it is the leaders that lie to their electorates as to the true extent of deficits and accumulated debts which they are committed to as a consequence of being stuck within a single currency that they have no power to devalue or print more off which risks PIIGS deflation. Greece and other Governments are looking for escape goats to crucify as their populations revolt under severe spending cuts and heavy tax hikes, for at the end of the day it is the electorate that is responsible for electing a bunch of liars and fraudsters as their respective parliaments.
The Market / Speculators are one of only a few mechanisms that are currently available to European PIIGS stuck in the Euro to attempt to correct the imbalances, i.e. markets forcing PIIGS to get their budgets in order or pay a higher price (yield) for the higher risk. In the end they will inflate, they have NO choice.
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By Nadeem WalayatCopyright © 2005-10 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on UK inflation, economy, interest rates and the housing market and he is the author of the NEW Inflation Mega-Trend ebook that can be downloaded for Free. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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