The presence of the aid package might have been expected to calm markets, but continued opacity over its workings and fears that political disagreement could prevent swift disbursement have left investors with more questions than answers. Greek 10-year bond yields hit 7.49% Thursday, a level unseen since 1998, sending the country back to pre-euro-era borrowing costs. But the real damage is at the short end of the curve and in the volatility of prices: Two-year Greek bond yields have risen more than two percentage points in just two days to 7.68%, 6.75 percentage points above German debt.
Remember how if Hank Paulson had a bazooka in his pocket there was no way he was going to need to take it out in order to keep the other boys at the urinal in line? Well, looks like Merkel's wasn't big enough either. Not that you can't fool the market some of the time -- there really are such mysterious things as self-fulfilling prophecies in finance -- but it was pretty obvious even to a naive observer like myself that the "bailout" was all smoke and mirrors. "We'll help if things get really bad" has about as much logic as "it's so crowded nobody goes there anymore".
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