New dangers are appearing over the global economic scenery, with capital markets having second thought about the indebtedness of western economies and China starting to restrain its home economy because of fears it will overheat. More precisely, almost all the Western governments are up to their necks in debt.
The money they borrowed was spent either to support the banking sector or the real economy. The latter part of it shows no hope of being recovered, while the state money bestowed to banks cannot yet be retrieved because it is not still certain if the capital and money markets can work effectively without the large state and central bank support. But let take one thing at a time.
Until last week, international media had focused on Greece…painting this country with the colors they liked best. Dark for English and German languages newspapers, grey for the French and Italian media, yellow for others and so on. The idea which the international, mainly English language media wanted to “sell” about Greece, was that the country was on the verge of financial collapse and there was not a chance that Athens would be able to pay its debs.
On 25 January, the Greek government decided to test the deep waters of the international capital market for the first time this year.
Up to then, the Greek state was borrowing regularly but on the internal market. In view of the first international bond issue, the Greek Organisation of Debt Management issued a five-year bond of a moderate magnitude, going from three to five billon euros, crossing its fingers because of the anti-Greek campaign by the international media. Actually, this five-year bond issue was a test case to see whether Greece would go bankrupt this year or not.
At least this was what the powerful media were saying. But no. The bond issue was received with the outmost openness by international capital markets and the amounts offered reached almost 30 billion euros, ending in two hours the entire refinancing problem of the Greek state debt. The next day the news was buried deep on page 60 and beyond. All of a sudden, the same international English language media discovered that many other Eurozone countries were on the verge of collapsing because of excessive state debt.
There is no question that there a of lot truth in this. Yes, some Eurozone countries are deep in debt. Not as deep, however, as Britain and the US. Greece, for example, is now forced to pay huge spreads on its state debt refinancing, despite the fact that there is no money parity danger on its obligations.
As far as the danger of failure is concerned, a Eurozone country at the limit may default, but there is no chance its debtors will not be paid in full. In any case the interest rate spread - above the benchmark 10-year German bond - on the Greek debt reached unseen before levels toward the end of last week.
This is not a logical expectation after the earlier rush to buy the Greek debt paper, which ended with a five-fold coverage of the asked sum. So this super-Greek spread has to be something else.
And this something else surfaced on 27 January when Reuters reported that Greece was negotiating with the Chinese for a 25 billion euros financial agreement, with the likely participation of Beijing in the capital of the largest Greek commercial bank, the National Bank of Greece.
NBG has developed or bought a strong network of subsidiaries all over South Eastern Europe and Turkey. The news was not confirmed by the Greek government but it seems there must have been a reality. Beijing is to become the ultimate creditor of the west, but western capitals do not want to know.