WSJ: Greece Must Learn To Read Markets To Survive

By Costas Paris

If Greece is to survive its worst economic crisis in modern times, it really needs to learn to read the markets.

Ever since the Greek crisis made world headlines in October, the Socialist government of Prime Minister George Papandreou has compiled a sad record of failed bluffs, leaks later denied and hasty moves that have caused market pandemonium–sending borrowing costs through the roof and the country to the brink of bankruptcy.

Athens needs to clean up its act fast. It plans a U.S. road show at the end of the month to sell $10 billion in bonds. But a previously planned Asia roadshow won’t happen because Greece blew a chance to attract Chinese funds by leaking, and then denying, that it planned to sell debt to Beijing.

In November, officials revealed to local and international media that Athens was working to sell billions of euros in bonds to China in a private placement.

Markets rejoiced. A massive investment from the cash-rich Chinese was seen as a vote of confidence for Athens.

But in January, when a newspaper reported that Athens had mandated Goldman Sachs to negotiate on its behalf for the bond sale, the government categorically denied not only the Goldman mandate but even the plan to sell debt to China.

The Athens stock market nosedived and the spread between Greek and German bond yields blew out to record levels.

The China affair led some in the Greek banking world to shake their heads at what they consider an amateurish approach that targeted short-term gains.

Then came Greece’s threat to go to the International Monetary Fund. Papandreou, who couldn’t wait for the austerity measures he announced in February to bear fruit and reduce spreads, warned his EU partners that he would go to the IMF unless they came up with a credit facility that would calm the markets.

Going to the Washington-based lender, however, was the last thing Greece wanted to do. But with the threat out there, a slew of government officials appeared on local media to repeat it, with the economy minister saying there was a 70% chance of Greece turning to the IMF. One official upped the ante, saying that if a March 25-26 EU summit failed to deliver a support plan, Athens might knock on the IMF’s door as early as Easter weekend.

The euro quickly dropped to multi-month lows and yields on Greek bonds soared to multi-month highs. One official said there was “a near panic situation” when Germany called Greece’s bluff and urged it to go to the IMF.

Finance Minister George Papaconstantinou responded by vehemently denying the report of an Easter surprise, calling it a deliberate fabrication.

At the EU summit, Greece did get a support mechanism that partly involves the IMF–and hailed this as a major success.

But in early April, government spokesman George Petalotis was quoted as saying Greece had only accepted the proposal because it had no other choice. Then there was a report Tuesday that Greece wanted to amend the bailout package because it doesn’t want the IMF involved.

The euro took a new hit and Greek spreads broke above 400 basis points for the first time. Papaconstantinou again vehemently denied the report–but he took his time about it, waiting until after Asian and European markets had closed for the day.

That delay vividly illustrates the Greek government’s urgent need for a competent public relations agency.

But the government’s behavior throughout the crisis proves that it desperately needs a few lessons in how to read the markets.
WSJ