…and how investor ignorance could make Greece suffer similar problems to Argentina
Thin markets can be very fickle. Even before the hurricane that hit financial markets couple of years ago and the continuing turmoil, asset valuations often had big swings without obvious changes in fundamentals. Such instability is larger in markets that lack liquidity and where there is a dearth of information about fundamentals.
Greek bonds have been hit strongly in the recent months. The election of a new Greek government in September with the subsequent revision of the country’s predicted fiscal deficit for 2009 from 6% to about 12% seems to have been the proximate cause. Greece’s combination of a really large deficit and a large public debt was already forcing it to pay slightly higher interest rates than most eurozone countries. The added uncertainty about greek statistics and a heightened risk aversion among investors almost doubled the interest investors ask to hold greek debt. A flood of articles has come, trying to explain the “Greek drama”, often from people who have never written about Greece before. It is no wonder that their analysis is very often flawed (besides abusing tons of ancient Greek clichés, a near failsafe index of the commentator’s dated information?).
Read moreThe greek fiscal “drama”: comparing Greece to Argentina and other absurdities