Greece Heads Back To Square One As EU’s Bazooka Was Nothing More Than A Water Pistol

Europe’s rescue plan for Greece is now bank at square one. The reason the plan failed is there never really was a plan to begin with, just bazooka talk. Please consider Greece May Be Heading Back to ‘Square One’ on Aid as Bonds Fall

Europe’s week-old rescue plan for Greece has so far failed to do what its leaders predicted: reduce borrowing costs for the region’s most indebted country.

The yield on 10-year Greek government bonds has increased 24 basis points to 6.522 percent since EU leaders agreed to the aid blueprint on March 25. That’s the highest in a month and more than double the rate paid by Germany. Seven-year bonds sold by Greece on March 29 fell for a second day yesterday.

“What they were hoping for was to set up some sort of arrangement that never has to be used,” said Phyllis Reed, head of bond research in London at Kleinwort Benson, which manages about $32 billion. “The markets have sniffed that out and it seems like we’re heading back to square one.”

IMF Managing Director Dominique Strauss-Kahn said on March 30 the lender would set the terms of any loans to Greece just as it does with other countries. Trichet said before the summit that ceding control to the IMF would be “very, very bad.” He later changed his tone to say he was “pleased” with the outcome.

“It’s supposed to be a joint EU-IMF thing, but it sounds like the IMF have plans of their own,” said Reed. “There are still a lot of question marks.”

With investors keeping up the pressure, Greek opposition politicians are criticizing the EU plan. Coalition of the Left deputy Dimitris Papadimoulis yesterday mocked Finance Minister George Papaconstantinou for comparing aid to a “loaded gun” that would threaten markets.

“The gun,” he said, “has proved to be a water-pistol.”

Waterless Water Pistol

Rising Greek bond yields suggest that the EU’s loaded gun was not a bazooka but a water pistol without water.

That will remain the case as long as Germany and France argue about what needs to happen

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