Instant View: Greece is missing ALL its fiscal targets and we’re throwing good money after bad

The markets have already priced in a Greek default, it’s time the EU woke up to reality, says financier John Vax

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Greek National Bank
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John Vax
On 29 May 2011 12:23

The old saying goes, “Fool me once, shame on you. Fool me twice, shame on me.” It now appears that the Greek government is, in all likelihood, badly missing the fiscal austerity targets set out by the IMF and the EU.

For the moment, the Greeks are denying these reports hoping to gain the confidence, once again, of European officials on the assumption that they will fork out another multi-billion euro tranche of taxpayers’ money. 

The question now is whether the Greeks can hoodwink Eurocrats from the Eurozone’s northern, more fiscally sound countries for a third time to throw perfectly good taxpayer money down the sink hole that is the Greek budget.  

By contrast, financial markets have long since given up on Greece and have nearly fully priced in a default. In other words, rational investors won’t lend Greece a cent (except at enormous interest rates).  

Question number one that both Greek and EU officials must come to terms with is whether the default will be managed and orderly, or out of control and chaotic.

Failure to act would effectively mean we get the out-of-control option. 

But if the Greeks and the EU choose a controlled default, the next issues to resolve are whether default takes place through a simple haircut, a restructuring the maturity of the debt, exit from the Eurozone, or some combination of the three. 

While the Greek government is denying that discussions along such lines are even taking place, it is known in the markets that some Greek and EU officials think that all of these options should be on the table.

The sooner they come to terms with reality the better for all concerned. Unfortunately, of course, Greece has a long track record of doing nothing of the kind. They lied to get into the Eurozone, they lied (on their statistics) to stay in the Eurozone, so what are the chances they’re about to come clean right now?   

John Vax is a principal at MT Thaler Investment Management LLP, a London-based hedge fund which focuses on credit markets

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