The lead paragraph on a Dow Jones Newswires story today sums it up nicely: Greek 10-year bond yields are higher than they’ve been in a decade, the stock market there fell and the Euro continues under pressure.
The very casual observer has to ask: wait a second, didn’t the European Union brethren of Greece agree that they would back up that nation’s troubled financials?
Wasn’t Greece in the most simplified, financial markets-only sense ‘fixed’?
Obviously, it’s not that simple and each day brings news and rumor that are not helpful to Greece’s situation. Not least of which is talk of tepid interest from potential big bond buyers in some parts of the world. Greece has to do some financing, so this is not good news.
Mark Brown and Nick Skrekas of Dow Jones Newswires reported a current 7.13% yield for 10-year Greek bond, four full percentage points above those issued by Germany. Go back to 1999 and that yield spread was less than two percentage points. The spread is likely to now further widen.
So what’s going on? In a macro sense, it goes to the heart of the Eurozone discrepancy. A lot of countries share a currency, open borders and much else. But in a crisis such as the one now being experienced by Greece, the key phrase is ‘a lot of countries.’
As long as there is individual sovereignty there are differing national interests. As long as there are differing national interests, there is domestic politics. Politicians want to stay in power. You do that by pleasing the home folks, not necessarily doing the ‘right’ thing, the latter a concept endlessly debatable in this case, anyway.
As the late Tip O’Neill, once speaker of the U.S. House of Representatives, famously said, “All politics is local.”
Exhibit A is a column by Dow Jones Newswires’ Madeleine Lim. To summarize: there are elections May 9 in a German state that are key to the party of Chancellor Angela Merkel staying in power. The German citienry generally is not in favor of bailing out Greece on easy terms. So it’s very unlikely Merkel will give any or many inches.
All of which will keep this story going and Greece twisting in the wind.