Everything Looks Like a Nail When You Have A Hammer

Kevin Drum quotes Hugo Dixon on the Greek recovery:

Greece is undergoing an astonishing financial rebound. Two years ago, the country looked like it was set for a messy default and exit from the euro. Now it is on the verge of returning to the bond market with the issue of 2 billion euros of five-year paper.

There are still political risks, and the real economy is only now starting to turn. But the financial recovery is impressive. The 10-year bond yield, which hit 30 percent after the debt restructuring of two years ago, is now 6.2 percent....The changed mood in the markets is mainly down to external factors: the European Central Bank’s promise to “do whatever it takes” to save the euro two years ago; and the more recent end of investors’ love affair with emerging markets, meaning the liquidity sloshing around the global economy has been hunting for bargains in other places such as Greece.

That said, the centre-right government of Antonis Samaras has surprised observers at home and abroad by its ability to continue with the fiscal and structural reforms started by his predecessors. The most important successes have been reform of the labour market, which has restored Greece’s competiveness, and the achievement last year of a “primary” budgetary surplus before interest payments.

Color me suspicious.  Both the media and investors fall for this kind of thing all the time -- the dead cat bounce masquerading as a structural improvement.  I hope like hell Greece has gotten its act together, but I would not bet my own money on it.

Anyway, that is a bit beside the point.  I found Drum's conclusion from all this odd:

If this keeps up—and that's still a big if—it also might be a lesson in the virtue of kicking the can down the road. Back in 2012, lots of commenters, including me, believed that the eurozone had deep structural problems that couldn't be solved by running fire drills every six months or so and then hoping against hope that things would get better. But maybe they will! This probably still wasn't the best way of forging a recovery of the eurozone, but so far, it seems to have worked at least a little better than the pessimists imagined. Maybe sometimes kicking the can is a good idea after all.

For those that are not frequent readers of his, I need to tell you that one of the themes he has been pounding on of late is that the US should not be worried about either its debt levels or inflation -- attempting to rebut the most obvious critiques of his strong support for more deficit spending and monetary stimulus.

I would have thought the obvious moral of this story was that austerity and dismantling all sorts of progressive labor market claptrap led to a recovery far faster than expected**.  But since Drum opposes all those steps, his  conclusion seems to be simply a return to his frequent theme that debt is A-OK and we shouldn't be worried about addressing it any time soon.

** I don't believe for a moment that Greece has really changed the worst of its structural labor market, regulatory,  and taxation issues.  This story gets written all the time about countries like, say, Argentina.  Sustained incompetence is not really newsworthy, which is likely one reason we get so few African stories.  They would all be like "Nigeria still a mess."  A false recovery story gives the media two story cycles, one for the false recovery and one for the inevitable sinking back into the pit.


  1. Richard Harrington:

    Government spending is the snake oil that cures every ailment! I think there are cognitive differences between people with different political beliefs, and one is apparently that people on the left aren't really concerned about the opportunity cost of any of their efforts.

  2. OMMAG:

    Kevin Drum is clearly shilling for the continued practice of socialist market interference. He is a fool.

  3. MingoV:

    Greece's biggest problems were: 1. Massive debt because few people paid the ridiculously high taxes. 2. Far too many government workers being paid far too much money. 3. Far, far too many retired government workers receiving around 80% of their pre-retirement pay.

    There was nothing about the massive debt and nothing about changing the compensation of government employees. So what was fixed that has some people excited?

  4. mesaeconoguy:

    This is more complete financial bullshit from Kevin Dumb and his lickspittle.

    Market participants are completely astonished at current Greek (and Italian and Spanish and...etc.) debt rates, which bear absolutely no relationship to the underlying macro conditions. Greece is still in enormous trouble, as are the rest of the PIIGS.

    The artificially low rates appear to be due to several factors, including

    1. Draghi’s unlimited pledge – investors will “ride along” with this promise, in anticipation that if anything goes south again, they’ll get at least partially bailed out,

    2. European bank regulations and Basel III – current (and prior) regs incentivize banks to hold each other’s sovereign debt as capital reserves, which is a bomb waiting to go off when one of the Euro countries defaults (they will, probably more than 1). This provides a ready market for “higher yielding” instruments and better rate spread in a ZIRP environment (which also attracts US investors).

    When this risk reprices, depending on how much of this debt lands where, things could get very, very violent, financially and otherwise. It is not accurately priced currently.

  5. Harry:

    6.3 percent for Greek bonds? I take it that Coyote is not dumping his vast cash hoard into that. They are denominated in Euros, right? Time for the Auto Workers or TIAA CREF or CALPERS to step up and buy those bonds in a show of solidarity.

  6. Matthew Slyfield:

    In other words, Greece's biggest problems were (and probably still are) 1. The Greek government. 2. The Greek government 3. The Greek government.

    And the left still thinks the solution is more government.

  7. Matthew Slyfield:

    "When this risk reprices, depending on how much of this debt lands where,
    things could get very, very violent, financially and otherwise. It is
    not accurately priced currently."

    The amazing thing is that there are people who still can't see this.

  8. Mercury:

    Greece's new 5yr debt is sporting such a low coupon in large part because they are being issued under UK law which means bond holders will have much less of a chance of getting stiffed next time TSHTF. No one trusts Greek courts. There's also a lot of desperate capital seeking yield in a world where central banks have artificially crammed down interest rates...and a lot of hoping and praying going on.

    Sure, some things look better on paper because the EU swooped in (several times) and picked up the tab (will they be able to do that for an EU member of more substantial size?).

    The (much smaller) Greek economy is still a mess and unemployment is pushing 30%.

    Central planning induced recovery?
    Sold to you.

  9. BruceB:

    Wow! A primary budget surplus before interest payments. That is like saying I am saving money every month, if only I didn't have to make my mortgage payment.

  10. skhpcola:

    [Kevin Dumb says] the US should not be worried about either its debt levels or inflation

    Of course he does, bless his heart. Wait until an eeeevulll Rethuglican gets into office, and Mr. Pajama Boy Dumb will be emphatic that record spending, record deficits, and inflation are killing the nation.

    Filthy partisan tools such as Dumb are transparent and explicit with their propaganda--much more so than their master Baal Obama. Yet, somehow, Dumb still manages to attract an audience of putatively-Libertarians like the host. WTF is up with that? On any issue, observe reality and study history, think up an inane and preposterous and contrary position...that's what will be promulgated by shitheels like Dumb and krewe. I don't need to read his pabulum. It is a continuing mystery why Warren so enjoys it.

  11. mesaeconoguy:

    It got mildly violent today, with the Fed notes release, but there's much, much further to shed value-wise here.

    Mr Yellen now officially owns the market, given China, Europe, etc. failure to "stimulate"...

  12. Tom Lindmark:

    Greek government debt was restructured several years ago. The interest rate burden was reduced and most principal payments deferred until after 2023. The government therefore has good albeit contrived cash flow until then. Given that the 5 year notes will mature long before 2023, they aren't really that risky. There may be a rebound in the Greek economy but this bond sale doesn't prove it.

  13. Spruance:

    Well, and the other three problems are the greek people, who elected those governments, the greek people (you got the idea).