Felix Salmon

Greek bailout chart of the day

By Felix Salmon
March 18, 2010

Do you find the latest news from Greece a mite confusing? After saying that Greece “cannot sustain the deficit reduction that these hard measures aim to achieve” if its borrowing costs remain in the 6.3% range (which doesn’t seem so high to me), Greece’s prime minister went on to say that he had not asked for any money from the IMF or anybody else.

Thankfully, Izabella Kaminska is here to explain exactly what Greece is seeking from the IMF, with this helpful chart:


It seems that Greece is going back to fluttering its eyelashes at the IMF, after playing very hard to get as recently as March 12. Yes, this chart shows how confusing the whole thing has been. But I also think that the ups and downs do make a weird amount of sense, in their own fashion.

At heart what Greece wants is for some kind of bailout (IMF, EMF, EU, whatever) to be clearly available to Greece in the case of emergency, which availability will help to reduce Greek credit spreads, thus obviating the need for any money at all. It’s the Paulson Doctrine gone euro: “If you have a bazooka in your pocket and people know it, you probably won’t have to use it,” he said back in July 2008, and Papaconstantinou is surely thinking along similar lines.

But the fact is that Greece’s debt dynamics are pretty gruesome, just as Fannie and Freddie’s were. And in that kind of situation, the market tends to force you to get out your bazooka sooner or later. My guess is that Kaminska’s chart is going to continue to veer wildly up and down until the bazooka is finally fired.

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