Admittedly, this is a dense post…so, take your time.
The Greek Government has agreed a billion-dollar bailout with the European Union and International Monetary Fund (IMF) but warned that the Greek public must be ready for big sacrifices.
The package will free up €120 billion (£104 billion) in aid over three years, Prime Minister George Papandreou said this morning, but will impose a freeze in public sector wages and pensions as well as tax increases.
German Chancellor Angela Merkel today said she was optimistic that the German parliament would pass legislation clearing the way for a multi-billion euro Greek bailout by Friday. May 19 is the deadline by which Greece must pay its creditors.
Earlier, German Economy Minister Rainer Bruederle had a more guarded reaction. He said Germany will examine closely the agreement before deciding whether to contribute.
His cautious response reflected deep German resentment at having to rescue Greece, which manipulated its figures to join the euro zone in 2001 and has lived beyond its means ever since.
Greece’s national debt will peak at 140 per cent of output in 2013 before it starts falling in 2014. Greece and its international backers hope that the deal can stem a crisis that has shaken markets worldwide, stoked fears of contagion to other eurozone members such as Portugal and Spain, and exposed deep divisions in the 11-year-old currency bloc.
This plan has to be approved by the Germans and the Eurozone and the Greek Parliament. France holds most of the Greek debt in the EU. If IMF and Germany don’t save Greece, then France goes in the hole. Spain and Portugal are already there. If France goes, then stand back, the global contagion is on.
To remain in the EU, countries must have a given debt to gdp ratio and other parameters. These parameters are not being met, the deal is falling apart. If the criteria gets relaxed, credibility in the markets toward the EU drops, investment will flee and the point of the EU itself becomes rather moot rather quickly.
Well, Greece is going under the IMF knife and the riots, as predicted, have begun:
MAY DAY protests in Greece turned violent yesterday as youths in gas masks and hoods set fire to vehicles, smashed shop fronts and threw molotov cocktails and rocks at police in an explosion of fury over austerity measures they claim will hurt only the poor.
Tourists were cut off from their hotels as thousands of communists, civil servants and private-sector workers converged on a main square in Athens to vent their rage at the European Union and the International Monetary Fund (IMF).
“No to the IMF’s junta,” they chanted as a youth in a black hood produced a hammer to try to smash windows of the luxury Grande Bretagne hotel.
Another painted anti-capitalist slogans on the facade, and demonstrators intervened to prevent him from spraying an Australian woman with paint as she tried to get back into the hotel. Japanese tourists stood taking photographs of the mayhem with mobile phones before being forced to retreat, coughing and sneezing, under a cloud of tear gas.
The violence came as negotiations were concluding between the socialist government of George Papandreou, the IMF and the EU over a multi-billion-euro rescue package for Greece.
And Spain is failing:
April 30 (Bloomberg) — Spain is lancing an 18 billion-euro ($24 billion) investment bubble in solar energy that has boosted public liabilities, choking off new projects as it works to cut power prices and insulate itself from Greece’s debt crisis.
Industry Minister Miguel Sebastian is negotiating reductions in subsidies for solar plants that would curb energy costs, a ministry spokesman said this week. Grupo T-Solar Global SA, the world’s biggest photovoltaic plant owner, shelved its Spanish stock offering three days ago. Solar Opportunities SL postponed a 130 million-euro deal due to be signed today.
“They’ve put the fear of god into all these investors,” said Paul Turney, chief executive officer of Madrid-based Solar Opportunities. “By the time they’ve finished dithering around, they’ll have hurt their credibility so badly that no one will want to invest.”
European Stocks Post Weekly Decline on Debt Concern; Banks Drop:
May 1 (Bloomberg) — European stocks posted the biggest weekly drop since February on concern that Greece’s debt crisis will spread across the region.Credit Agricole SA paced declines in bank shares. Rio Tinto Group led mining shares lower as copper prices retreated. Nobel Biocare Holding AG, the world’s largest maker of tooth implants, fell after first-quarter sales missed analyst estimates. BP Plc dropped on concern about the costs of containing a worsening oil spill in the Gulf of Mexico.The Stoxx Europe 600 lost 2.8 percent to 259.91 for a third weekly decline. The benchmark gauge slipped 1.4 percent in April. Stocks fell as Standard & Poor’s downgraded the credit ratings of Greece, Portugal and Spain and investors speculated Greece’s credit troubles would spread further. The declines have trimmed this year’s gain to 2.4 percent.“What’s weighed on the market is the downgrade of Greece, renewing uncertainty,” said Chicuong Dang, an analyst at KBL Richelieu Gestion in Paris, which oversees about $4.5 billion. “Greece is in an urgent situation. The downgrades of peripheral countries also weighed on stocks. The market is asking who will be next.”S&P on April 27 lowered its ratings on Greek debt three steps to junk, while Portugal’s was cut two steps. A day later, S&P cut Spain’s rating by one step to AA.Almost $1 trillion of worldwide equity value was erased April 27, prompting German Chancellor Angela Merkel and the International Monetary Fund to step up efforts to overcome the Greek fiscal crisis.
The Greeks have until May 19 to repay their €8,500,000,000 debt in bonds or they cant borrow anymore and the country of Greece goes bankrupt (Economists have also warned that if the euro states fail to engineer a Greek bail-out to calm markets, they could end up footing a bill of €500bn). Spain and Portugal are next. As the investor confidence goes down, or risk of no repayment goes up, or the sheer amount of debt gets out of line, the bond yield goes up, the more expensive it is to borrow…this can very easily become an EU or Global Contagion. The little countries go first, then the larger ones follow down the debt hole…America will probably have this problem soon because of our huge debt. Of course, if the Eurozone collapses, the capital flight to quality may be to buy US Bonds…just thinking out loud there…
(Here is some background in how the bond markets work. The US debt is going to be a massive issue here shortly, this debt is the single most important issue we face.)
