Their GNP has shrank over 25%.  Unemployment is 27%, which is a depression level.  Suicides have soared.  A quarter of the population lives in poverty.  Imagine this is America!  It has been a terrible price to pay, but, in all likelihood, it is still not enough.

The turning point is that the Greek government has finally passed some badly needed legislation to curb excessive pension costs and business regulation.  Of course, implementation of these changes will be critical for long term success.

Importantly, the leaders of the EU paved the way for this successful sale by NOT ridiculing the Greeks.  Merkel even flew to Athens the day after the sale to congratulate everybody.  “High Fives” were everywhere!  EU leaders wanted Greece to have access to the financial markets.

But, who would actually buy the government bonds of Greece?  To everybody’s surprise, demand for the bonds was brisk.  They sold out quickly.  One reason is that 4.95% interest rate for five-years is high, compared to 2.5% and 1.4% for similar bonds of Portugal and Ireland, respectively.  In addition, you will recall existing Greek debt was restructured to longer maturities, mostly 30 years.  That means these new bonds will have to repaid before the existing debt, effectively making it senior debt that pays almost 5%.

I’m glad to see this success and hope it continues.  It reflects well on the global financial markets for sure.  It is also a reminder of what happens to economies who borrow money to pay for entitlements.