Greece is undergoing an astonishing financial rebound. Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market with the issue of 2 billion euros of five-year paper.
There are still political risks, and the real economy is only now starting to turn. But the financial recovery is impressive. The 10-year bond yield, which hit 30 percent after the debt restructuring of two years ago, is now 6.2 percent....The changed mood in the markets is mainly down to external factors: the European Central Bank's promise to "do whatever it takes" to save the euro two years ago; and the more recent end of investors' love affair with emerging markets, meaning the liquidity sloshing around the global economy has been hunting for bargains in other places such as Greece.
That said, the center-right government of Antonis Samaras has surprised observers at home and abroad by its ability to continue with the fiscal and structural reforms started by his predecessors. The most important successes have been reform of the labor market, which has restored Greece's competitiveness, and the achievement last year of a "primary" budgetary surplus before interest payments. [Reuters]
Given the kind of people who have been in charge of the thing, I guess it's sort of impressive that the European Central Bank has finally figured out how to use their infinite Euro-creation power to keep member nations from defaulting on Euro-denominated debt. But with unemployment still over 27 percent, I'd say let's hold off on talk of a recovery.
Indeed, I rather fear this could be the worst of all worlds. Moving off the Euro would have been awful, but at least held the prospect of returning to growth and full employment within a couple years (from a much lower base). By contrast, the bank Natixis recently estimated that, given very generous assumptions, it will take Spain (which is in similarly dire straits) 25 years to return to 2007-era employment. A nation can do a great deal of catch-up growth in that time.
Realistically, I'd guess this means that Spain, Greece, Italy, Portugal, Ireland, etc., will never recover fully, and instead we're witnessing the birth of a crummy, tattered Franco-German empire with a permanently depressed periphery.
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