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Greek Default Almost Assured

The Acropolis (photo: Loic Pinseel)

Greek bond yields are pricing in default with a 98% degree of confidence. This is the latest in the almost monthly flare-up where Greece is set to default, followed by some half-measure from Eurozone members that props them up, followed by a lack of confidence in that plan. This just causes more uncertainty and pain for the whole of Europe.

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

It costs a record $5.8 million upfront and $100,000 annually to insure $10 million of Greece’s debt for five years using credit-default swaps, up from $5.5 million in advance on Sept. 9, according to CMA. Greek bonds plunged, sending the 10- year yield to 25 percent for the first time.

It’s not so much the Greek lost cause but the contagion that has spread elsewhere that’s the real problem. Credit default swaps on debt from Italy, France, Belgium and Portugal, as well as French banks, are all at new record highs.

There’s still quite a bit of denial from countries like Germany, with their focus on “losing patience” with Greece, rather than the simple fact that the plans they prescribed to avoid default, mainly austerity, simply didn’t work. They can go forward and move toward fiscal integration or go backward and break up the euro. They cannot muddle through, which has been the main strategy so far on the sovereign debt crisis. It has only exacerbated it.

The prediction is that Greece has until the end of October before a default event that could trigger a much wider crisis. The clock is ticking.

CommunityThe Bullpen

Greek Default Almost Assured

Greek bond yields are pricing in default with a 98% degree of confidence. This is the latest in the almost monthly flare-up where Greece is set to default, followed by some half-measure from Eurozone members that props them up, followed by a lack of confidence in that plan. This just causes more uncertainty and pain for the whole of Europe.

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

It costs a record $5.8 million upfront and $100,000 annually to insure $10 million of Greece’s debt for five years using credit-default swaps, up from $5.5 million in advance on Sept. 9, according to CMA. Greek bonds plunged, sending the 10- year yield to 25 percent for the first time.

It’s not so much the Greek lost cause but the contagion that has spread elsewhere that’s the real problem. Credit default swaps on debt from Italy, France, Belgium and Portugal, as well as French banks, are all at new record highs.

There’s still quite a bit of denial from countries like Germany, with their focus on “losing patience” with Greece, rather than the simple fact that the plans they prescribed to avoid default, mainly austerity, simply didn’t work. They can go forward and move toward fiscal integration or go backward and break up the euro. They cannot muddle through, which has been the main strategy so far on the sovereign debt crisis. It has only exacerbated it.

The prediction is that Greece has until the end of October before a default event that could trigger a much wider crisis. The clock is ticking.

…This Der Spiegel article is perverse. The idea that Athens is to blame for the austerity program imposed on them by the ECB and IMF not working makes no sense. There is talk of allowing Greece to leave the euro, which given the level of the crisis is probably the least-worst option.

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David Dayen

David Dayen