Grexit the Boogie Man

This is not 2010, 2011, or 2012.  Spanish and Italian 10 yr bond yields are 1.58% and 1.67%.  In 2011, they were 6+% and 7+%, respectively.  It doesn't take a genius to figure out that the markets have spoken.  They could care less about a Greek exit of the EU.  They hardly budged when Syriza got elected, and when there were worries about Greece at the end of February.  It just doesn't matter, no matter how many articles or proclamations of another Lehman.

The PIIGS minus the G don't care if Greece exits.  Because they aren't anywhere even close to a Greek situation.  They aren't on a bailout program.  If you can issue sovereign bonds at interest rates less than US Treasury, you have NO contagion risk.  How can you compare a government bond rate of 17% for Greece with less than 2% for Spain/Italy?  And the whole foundation of the Grexit scare is contagion, not Greece itself.  Greece is in a whole another ballpark compared to Spain Italy or even Portugal.  Even Portugal 10 yr is at 2.4% now.

Greece has little leverage left.  If they tried to bargain in 2011, they would have gotten a sweet deal.  But they didn't.  Now the threat of Grexit is an empty one.  I am sure some scarecrow politicians will fear Grexit, and probably a few scarecrow underperforming investors, but the market sure doesn't.  Greece is better off leaving the eurozone anyway and defaulting on their debt.   Even a weak euro is not weak enough for Greece.  Greece needs a massive devaluation like no other country in the world.  The only way they can do that is going back to the drachma.  Europe is also better off because it will finally be able to prove that one country leaving the EU won't blow up the whole project.  Europe isn't decaying because they are cobbled together with a single currency.  It is because they have the worst demographics in the world with the most levered banks.

The bond market has no fear of a Grexit.  And I'll take the opinion of the bond market over the opinion of writers and chicken littles any day.  In 2011, the whole euro zone falling apart was a big giant empty scare that was solved with the printing press.  ECB QE is a panacea for the ills of Europe, for at least a few months.  It trumps any Greece headlines or a Greek exit from EU.  Money talks, Greek BS walks.  If there is one lesson to take from the last 6 years, if you print enough money, or promise to, you can solve anything.