It will not be long before Greece is accepting aid from the IMF as credit default swaps on Greek debt surged to record levels, pushing up Greek borrowing costs. Please consider a pair of Bloomberg articles highlighting the problems.

Spillover Hits Portugal and Spain, Loonie Rises

Euro Drops for Fifth Day on Concern Greece Talks May Fall Short

The yield premium investors demand to hold Greek 10-year bonds instead of benchmark German bunds climbed to 5.01 percentage points, the highest level since at least March 1998. Canada’s dollar touched the strongest level since June 2008 versus the greenback as traders increased bets on higher interest rates.

“People are anticipating what will happen when you move liabilities from Greece to the balance sheets of Germany, France and other healthy economies,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “Euro-dollar should be lower.”

Credit-default swaps on Greece surged 31 basis points, or 0.31 percentage point, to a record 495, according to CMA DataVision prices. Contracts on Portugal jumped 27 basis points to 228, and those on Spain climbed 16 to 161 basis points.

The Canadian currency, known as the loonie, traded at 99.90 Canadian cents per U.S. dollar after reaching 99.31, the strongest level since June 2008.

Wake-Up Call on Sovereign-Debt – Public Unions Protest

Greece Aid Talks Begin as IMF Signals Debt Threat

Greece began talks today on activating a 45 billion-euro ($61 billion) emergency aid package as the International Monetary Fund called the country’s fiscal crisis a “wake-up call” on sovereign-debt risks.

Greek officials joined counterparts from the euro-region, the IMF and the European Central Bank to begin hammering out the deficit-cutting measures Greece will have to accept to be able to tap the funds. The government needs to raise about 10 billion euros before the end of May, and its soaring financing costs are lending urgency to the talks.

“There is no chance that Greece will be left hanging in the month of May, whether borrowing from the market or borrowing from our partners,” Finance Minister George Papaconstantinou said yesterday in Athens. He said the talks will take at least 10 days.

The surge in Greece’s deficit will push the country’s debt to more than 120 percent of GDP, overtaking Italy as Europe’s most indebted country, the European Commission forecasts.

Unions are already threatening more strikes to protest the additional measures. Civil servants, whose wages and benefit were cut this year, hold a 24-hour walkout tomorrow. Papandreou may make a public address this week in a bid to convince Greeks that the country may need to tap the rescue package, Kathimerini newspaper reported today.

One of the reasons Greece is in this fix is overly generous union salaries and benefits. However, striking is a national pastime in Greece and the unions will stage a walkout. Papandreou should fire them all on the spot, just as President Reagan did with the PATCO air traffic controllers.

Mike “Mish” Shedlock
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