Greece: Fearsome Borrowing Costs Persist

[Stocks-to-Watch]

As widely reported, Standard & Poor’s today removed the “CreditWatch” status it had placed on Greece’s sovereign debt back in December, deeming the country’s recent budget cuts and tax hikes as appropriate to maintain a BBB/A-2 rating.

But of course the key thing is that S&P’s “Negative” outlook on the country’s debt is still there, based on its analysts’ expectation that Greece will having rising expenses from an aging population, and dwindling tax revenues in years to come. And the all of that feeds the vicious cycle of borrowing costs:

[I]n our opinion, if the currently high borrowing costs persist–the spread on Greece’s recently issued 10-year bond was 300 basis points above the mid-swap–the large and growing debt burden, which we currently expect to peak at about 133% of GDP in 2012, is likely to increase further.

A glance at the credit default swaps on Greek five-year sovereigns going back a few years shows what a disastrous position the country’s been placed in, as illustrated in the chart below. To wit, If Greece couldn’t keep their finances in order back in, say, 2007, when spreads were near zero, how is Greece supposed to fix things with spreads still near 300 basis points?

Original Article Source by Barrons.com