LONDON - Do you like proverbs? Here is one that can be applied the leaders of Europe: "Empty vessels make the most noise." Or in plain words, those cursed with an empty head make more, meaningless noise than wise, thoughtful people.
Think back to Feb. 11. The newly-elected European president, Herman Van Rompuy, had to alter the agenda of his first European Summit to create a period of time in which Greece could be discussed.
On that day the Greek Prime Minister George Papandreou had stated that Greece did not need any help from the European Union or other euro-zone nations to contain its budget deficit. The world was told that Greece would be able to access the capital markets and implement a "Spartan" existence through tough budget cutbacks. The spread of 10 year Greek government debt over German 10-year paper was 2.732% or 273.2 basis points.
This puzzles me. Here we had a Prime Minister who stated that his nation did not need help, and yet he flew to Berlin to see the German Chancellor Angela Merkel on Friday Mar. 5 (when Greek bond spreads were at 291.1 basis points) and then to Paris the following Sunday, to meet French President Nicolas Sarkozy, ostensibly to discuss the possibility of financial support.
While the German leader lacked enthusiasm, Sarkozy did not, insisting that Greece's euro-zone partners could not abandon it and defeat the very purpose of the 16-nation, single-currency project. French Finance Minister Christine Lagarde later said France would support Greece, and didn't offer any detail. (Watch the video: "Lagarde On European Bailouts.")
The markets were less than enthused, and on Mar. 8 the Greek spread was out to 305.9 basis points. It's as if investors were screaming at the politicians that they wanted specifics.
As the Greek prime minster toured Europe and then headed out to Washington D.C., two critical developments took place. The president of the European Central Bank, Jean Claude Trichet, said it would not be "appropriate" for the International Monetary Fund to help Greece, a seemingly clear statement that the European Union was going to solve the Greek issue themselves.
Simultaneously, the Greek government successfully launched into the market a 5 billion-euro ($6.8 billion) offering of a 10-year bond. Demand was high, with the total number of bids recorded at 14.5 billion euros ($19.7 billion). At the time, the auction was claimed an absolute success.
But I was concerned about this optimistic view--the Greek bond spread at the launch was 326 basis points over Germany’s, and just the day before, the previous 10-year Greek benchmark had traded at 285 basis points above the bund. No wonder the new issue was snapped up!
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