Markets are more sensitive to Greece’s woes than Merkel

German Chancellor Angela Merkel enjoying an exposure to the Press

Greece’s three official creditors, the International Monetary Fund,  the European Central Bank and the European Union are actually two and in last analysis only one, the ECB. In reality all the other sixteen Eurozone governments plus the EU institutions and the IMF, haven’t given away not even one cent to Greece. They have only issued guarantees which at the end may cost them nothing. Greece has gone bankrupt many times during the past two centuries but the country has repaid in full all its creditors. So far Berlin and the other Eurozone governments are actually making super profits as they are being paid at par (100%) for the maturing Greek bonds they bought at huge discounts in the secondary market. In plain English this is called usury against a desperate country. On top of this the ECB (which holds anything around €50 billion in Greek bonds) transfers to its shareholders (the Eurozone governments) the windfall profits its makes on maturing Greek debt paper. ECB has also acquired those bonds in the secondary market at discounts ranging from 65% to 30% but it cashes them on maturity at nominal value (100%), at the expenses of the impoverished Greek taxpayer.

This is so far the cooperative spirit shown to Athens from its Eurozone partners. In a peculiar manner markets are being much more benevolent to Greece. In this respect the majority of private holders of Greek bonds accepted a deep haircut on their wealth and now the new bonds they have received in exchange of 53.5% of the old paper they held, worth only 25%-35% of their new nominal value. On the contrary the official holders of Greek debt, that is the other 16 Eurozone governments, do not even discuss the possibility of accepting a reduction (haircut) on the Greek debt they hold. Given however that there is no other way to make the Greek debt viable as the IMF demands, it is more than certain that the official Greek debt will also be cut, in one way or the other.

It seems however that Berlin insists that this should be realised after the German elections of September 2013. In this way the internal petty political interests of Angela Merkel will hold an entire nation on probation for another year, despite all those statements of sympathy and compassion for “the difficulties of the Greek people”. True, politicians are a bunch of heartless people who care only for votes. In this way Merkel is holding back the resumption of economic activities in Greece, only to protect her electoral prospects. On the contrary pragmatism reigns in the financial markets not because the agents there are more compassionate, that are not, but because they have learned to accept reality. And the reality is that if Athens is not given some space to breathe a sociopolitical “accident” may occur and send the entire Eurozone ablaze.

Markets know better to estimate sociopolitical dangers that the politicians tend to neglect or overstate according to their petty interests of the time. In short the conclusion is that markets are much more sensitive to borrowers’ pains than politicians, not because they are more sensitive to people’s woes but because they count more on growth. On the other hand politicians care only to win elections and don’t mind if they are to govern a country in recession or in economic expansion.