There is a desperate hunt for yield underway. You think property prices in places like London and New York are out of control? Try asset pieces. The poshing up of the markets is underway. Investors that only played in the shortest and safest bonds are now buying up swathes of risky markets and clambering ever further along the yield curve ledge. High yield is Hackney and Harlem to supranationals’ South Kensington and Upper East Side.
Meanwhile, Greece needs debt relief or to leave the euro. Only the first of those is likely to occur. The country has already been through one debt reduction exercise — 2012’s private sector initiative.
In the private sector initiative, the public sector took the initiative, press ganging bondholders into haircuts and restructuring. It didn’t work. Greece is still insolvent, austerity is no more successful a policy than it was when the troika imposed it, and the Greek government has a mandate to play havoc with the EU. Something drastic needs to occur to maintain glorious currency union.
Something super long that pays minimal interest could be the answer. After all, if Spain — hardly the poster boy of economic health in the eurozone — can issue debt at negative yields and if Mexico can issue a 100 year bond in the currency, then why can’t Greece get in on the action?
If eurozone states clubbed together to guarantee principal, and maybe even a modest coupon, then why would investors not sign up in their droves to lend money to Greece in size? For no outlay, currency union could be maintained, investors would stop having to pay to lend, and Greece could secure cheap funding. What’s so foolish about that?
