Yesterday Greece saw its rating downgraded to the lowest level in the eurozone amid fears over its deteriorating public finances. In fact suddenly Greece 's government realized to be running a Ponzi scheme where its deficit is being, according to new statistics, tripled over few months from 3.7% to 12.7% of GDP. According to Euro area rules (Stability and Growth Pact) deficits should be kept within 3% of GDP.
Economists will remember when in 2004 Greece admitted that deficit figures were fudged to secure euro entry.
Today original 'Bond Vigilantes', that is bond investors, are reacting to authorities' loose monetary or fiscal policies, including lies, by forcing sovereign bond yields higher, thus punishing central banks or governments by increasing the cost of issuing further debt.
(CDS Widening Spreads or Greatest Credit Deterioration by CMAVISION on Wednesday, 9 December 2009 — 12:30)
Of course those Bond vigilantes are not happy if somebody is also fudging national accounts in Ponzi style.
It’s a typical case of EU’s failure to scrutinise member states’ economies. Where was the European Commission when Greece had been fudging statistics?
There are lies, damned lies and statistics but markets, very often are considered true vigilantes very different from political institutions like the European Commission.
PS: "The European Union’s economic affairs commissioner said officials are ready to help Greece get to grips with its budget deficit after concerns about its public finances sparked a rout in Greek government bonds.
The European Commission “stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program, in the framework of the treaty provisions for euro-area member states,” said Joaquin Almunia, who is in charge of economic and monetary affairs, in a statement late yesterday. He didn’t say what form any assistance could take".
What a statement. Perhaps we could have simply helped Greece to have reliable accounts and monitor them even before its Euro membership. Hindsight bias?