Greece tapped international capital markets earlier this week with a 3-billion-euro, five-year bond offering.
This was the country’s first time in the bond markets since 2014. And demand was two-times oversubscribed.
In fact, this bond sale comes as Greece digs out of financial ruin. It clearly wants to re-establish private funding, ideally before its third bailout ends next summer.
Good news? Not by a long shot.
For starters, consider how movers-and-shakers spent the last week subtly manufacturing demand for the bonds …
- The International Monetary Fund awarded Greece a 1.8-billion-euro conditional loan.
- Eurozone officials praised Greece over stricter fiscal reforms.
- Standard & Poor’s upgraded Greece’s outlook to positive.
- The bonds come with a 4.75% coupon – in a world of paltry yields on government debt.
- Plenty of fanfare over hopes that the Greek economy is on the mend.
I don’t buy it. In fact, if you dig deep into the fine print of the deal, it came with a load of strings attached.
A big red flag: Half of the bond offering was a swap that gave existing holders an opportunity to salvage their investment at a modest profit.
If that sounds sketchy, it’s because the maneuver resembles a Ponzi scheme – where investors get paid with new capital.
Additionally, the debt offering generated no new funds for Greek coffers. Instead, it kicks the debt-repayment can into 2022 and pays down interest owed to the European Central Bank.
And don’t forget …
Last month, the Eurozone released 8.5 billion euros to Greece as part of their third bailout.
This was followed by the IMF extending a $1.8 billion conditional loan for Greece last week, while limiting how much debt the government can hold.
Talk about throwing good money after bad.
In addition, the IMF held back on disbursing more cash on two conditions. One, European officials must detail their debt-relief plan. Two, the EU institutions must provide assurance of Greece’s debt sustainability.
Larry Edelson talked about Greece scheming for IMF funds earlier this year.
It’s particularly important for Greece to resolve these matters before participating in the ECB’s 60-billion-euro-per-month bond-buying program, a vital funding stream.
All told, that adds up to more financial uncertainty for Greece, the EU and their debt-holders.
Debt woes in Greece are far from resolved – despite years of political posturing, backroom deals and ultra-loose monetary policy.
And it’s all because its governments spent beyond their means. And their problems are far from over and will surely incite more political uncertainty in the coming year.
The message is clear: You can’t save a nation that’s drowning in debt by throwing more debt at it any more than you could save a drowning man by throwing more water on him.