It is difficult for the global markets to maintain a continued concentration on the fallout from the Greek credit crisis. The markets have spent five years trying to discern what the impact will be from either a default and the Greeks leaving the Euro and thus the EU. The last few days of trading has to make the European authorities nervous as the rising specter of the Greeks actually pushing the exit button becomes a genuine possibility. (Or at least the Greeks want to impress upon their creditors that it is a tactic they are not afraid to utilize.) The fear of a country actually choosing to EXIT has led to yields on Italy, Spain, Portugal and Ireland to rise dramatically. The 2/10 yield curves have steepened as investors are lightening up on the peripheral nation bonds. (The ECB seems to have been sidelined for the last few days as the bank preserves its capital for possible more volatile situation.)
German bund yields have fallen because nervous investors are grabbing good collateral in case the negative response to a GREXIT is more dynamic than European policymakers have thought possible. U.S. Treasury Secretary Jack Lew has warned against European and IMF complacency if Greece was forced to leave the euro. The Greeks are willing to call the bluff of the Brussels Eurocrats and force the Greeks out as the SYRIZA party knows that more austerity will not improve the Greek economy. The Greeks want debt relief and restructuring so as to have some sense of victory to show the months of negotiation.
Two articles are a must read to shed some light to where the debt negotiations have evolved. The first article is from the June 5 London Telegraph written by Ambrose Evans-Pritchard, titled, “IMF Has Betrayed Its Mission In Greece,Captive to EMU Credit.” The second article is written by Mark Weisbrot of the Center For Economic and Policy Research (CEPR), titled, “Germany is Bluffing on Greece.” Both are worth a read for a perspective not found in the main stream media. We always search for thinkers to shed light into the dark corners of the global-macro world.