Friday, April 09, 2010

This is no longer about liquidity; it’s a solvency issue

No, this is not about rehashing Lehman Bros. But it is a bit of a deja vu all over again.

As Greek Bond Rates Soar, the Specter of Bankruptcy Looms
The message from the market could not be clearer: artfully worded communiqués from Brussels will no longer suffice. To avoid bankruptcy, analysts said, Greece needs a bailout from Europe, and fast.

“This is no longer about liquidity; it’s a solvency issue,” said Stephen Jen, a former economist at the International Monetary Fund who is now a strategist at BlueGold Capital Management in London.

There are unmistakable signs that individuals and corporations are withdrawing funds from Greek banks, although the sums involved do not yet constitute a bank run.

Still, weakened Greek banks, increasingly shut out of the capital markets, have become largely dependent on the European Central Bank and have turned to the Greek government to release more money from a previously established rescue fund.

The Greek government is coming close to giving up on private investors as well. While Athens said it would go ahead with its short-term borrowing auctions this week, the planned fund-raising trip this month by Greece’s finance minister, George Papaconstantinou, to tap Wall Street investors is unlikely to happen as long as Greek borrowing costs remain high, said a person who was briefed on his plans.

Would you care for a slice of Lehman with your souvlaki?

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