In­vestors have been bet­ting on a Greek de­fault since 2008

Kathimerini English - - Business & Finance - BY PANAGIS GALI­AT­SATOS

Spec­u­la­tion about a Greek de­fault started long be­fore the mar­kets found out that the coun­try’s bud­get deficit was in dou­ble dig­its as a per­cent­age of gross do­mes­tic prod­uct, since of­fi­cial data show that in­vestors had been gam­bling on it from as early as two years ago.

Ac­cord­ing to DDTC, the of­fi­cial data­base of the In­ter­na­tional Swaps and De­riv­a­tives As­so­ci­a­tion, the av­er­age amount of money staked on a daily ba­sis on Greek credit de­fault swaps (CDS) stood at $450 mil­lion from June 2009 to March 2010.

That was long be­fore Athens ad­mit­ted its deficit was spi­ral­ing out of con­trol and dis­cussed the coun­try’s debt with its Euro­pean Union peers in view of a bailout.

In­vestors clearly re­al­ized at the time that Greece was not shielded at all from the global credit cri­sis, and was par­tic­u­larly vul­ner­a­ble to con­ta­gion from a re­ces­sion in the United States, which be­came cer­tain in early 2008. That was pre­cisely the time when the price of Greek CDS started climb­ing to 80-90 ba­sis points.

In Septem­ber 2008 the pres­ti­gious CEPS think tank in Brus­sels spoke for the first time about the pos­si­bil­ity of a Greek exit from the eu­ro­zone, send­ing the CDS 200 bps higher. Now, of course, their price has soared to 1,369 bps (on May 9, 2011), dou­bling within less than six months.

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