The trigger for Thursday’s wild moves was a report by Eurostat, the EU’s data agency, that Greece’s budget deficit last year was at least 13.6pc of GDP, and may be revised to over 14pc after a probe into “off-market swaps” and social security funds. Overall debt may be 5pc to 7pc of GDP higher than thought, pushing the total for 2009 to 122pc.
They\’ve still been lying?
With contagion spreading across Southern Europe, spreads on 10-year Greek bonds exploded to almost 600 basis points over German Bunds in panic trading, pushing borrowing costs close to 9pc. Rates on two-year debt rose to 10.6pc in a market gone mad.
It would seem that people really don\’t like it when they\’re lied to repeatedly. Even if it is by a Government.
City bankers are bracing for a possible haircut of up to 50pc on €270bn (£235bn) of Greek sovereign debt, hoping that any losses will be split between creditors and some sort of EU resolution fund.
It is difficult to see that this won\’t happen.
As we all know, countries don\’t actually go bankrupt but just as with individuals and companies, when the debt burden simply cannot be repaid it\’s better to agree that it can\’t and cut it.