In the End, It Will Be a Handout for Greece

The Euros promised loans for Greece. Greek bonds tanked. They promised to back Greek debt. Greek bonds tanked. Now they're right where you'd expect them to be if they were dealing with fiscally irresponsible bums. They're just going to hand them a wad of cash.

Despite the ratings cut, Greece's 10-year bond spread— the amount of interest it has to pay to borrow, above what ultra-safe Germany pays—narrowed and the euro rose. The 10-year yield skidded at one point to 7.11%, from 7.38% Thursday, still well above the 3.17% yield for comparable German debt, considered the euro-zone benchmark. The moves came amid signs that European Union finance officials meeting in Brussels had made progress on the technical details for a potential bailout.

European Union President Herman Van Rompuy told several European newspapers on Friday that the bloc "will be ready to step in if the Greeks ask." French President Nicolas Sarkozy and Italian premier Silvio Berlusconi echoed those remarks, saying at a news conference that their countries were ready to help.

This is happening because it's not possible for the Greeks to get their own house in order unless they change their world view completely. For decades, they've focused on helping unproductive people at the expense of the productive ones. Now there aren't enough productive people producing things to pay the bills. Loaning them more money and handing them cash is going to do nothing in the long run.

Greece is likely to meet its big debt repayments this month and next—either by scraping up enough cash from capital markets or by taking an international bailout. What has many investors worried is what happens after that.

"It has dawned on investors that solvency is a major issue—not a minor issue," says Stephen Jen of the hedge fund BlueGold Capital Management.

Underscoring such concerns, Fitch Ratings cut Greece's credit rating two notches Friday, to BBB-minus and said its outlook for the future was negative. The agency cited doubts that Greece in the medium term would be able to stick to tough budget cuts and tax increases.

Greece's Finance Minister George Papaconstantinou with Greek Prime Minister George Papandreou. I think.