Greece’s prime minister has reiterated that Greece will not default on its debt. After all, if they were going to do so then they would have already done it:
“If we were going to default, we would have decided that many months ago,” Papandreou said. “It would be wrong for the Greek economy, it would be wrong for the European economy, it would make things worse in the end. That’s why we’re taking the pain and making these structural reforms, and we’re on target.”
Choosing to default rather than take austerity measures “could have a contagion effect in the European Union and in the end it would also be creating much more pain for the people of Greece,” Papandreou said.
These statements are part of a confidence-building effort. Note Greece came back to the bond market today, raising 390 million euros of 3-month debt at 3.975%. Demand was 6 times the amount of the issue, and the original issue of 300 million euros was expanded to the 390 million they completed. So the short-term debt sale went well… but few would expect a default on 3-month debt.
It’s the longer-term bonds that are of real concern, which is why the 10 year Greek bond yield remains around 11.35%, compared to a 10-year German bond at just 2.46%. Still, if Greece doesn’t default, then bond buyers could be laughing all the way to the bank.
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