Posted by donnywise | Posted in Consumer and Banking Analysis | Posted on 01-05-2010
The downgrade on Spain by Standard & Poors did spark immediacy into a reluctant Chancellor Merkel in being proactive on behalf of Germany and the European Union (EU) to engage the International Money Fund (IMF) in joint negotiations to develop a three-year financing plan of around $130 billion euros or $170 billion dollars to ease the fiscal crisis of Greece. The decisive measures are easing concerns on the imminent default by Greece. The negotiations are with many obstacles to derail the process as Chancellor Merkel is taking steps that are very unpopular in Germany to bailout a country that has been dishonest in reporting figures and statistics to gorge on debt until this crisis point.
In addition, the austerity measures in the massive cuts in the budgetary expenses of Greece must be agreed under the IMF and EU stabilization plan. The citizens of Greece are upset and angry at the perception of living luxurious and the years of future economic distress to bring solvency to Greece. The failure of Germany to pass the legislation because of the unpopularity of the package or a rejection of budgetary measures by Greece is a risk to derail the process. Germany is the economic and monetary engine to make this bailout a reality and Greece must take ownership and implement actions in cutting expense because the aid alone will not avoid bankruptcy for Greece. The rapid spread of contagion to other financially challenged members of the EU shows that the risk of widespread global consequences is real without containment.
In Washington, DC, this situation is being watched because a Greek default would have ramifications in America. The following link is to donnywise.com to provide local and national impact of a Greek default. However, the media is stating the current crisis in Greece is a European problem. The perplexity of the crisis is a sign to America that reactive measures are not an optional in managing Sovereign Debt. Greece has Germany and the IMF as the deterrent to failure because of the threat a default would evoke. The bailout mentality in the current downturn is a false sense of security that failure is not an option for country or corporation. Greece’s economy is about 3% of US GDP, and the default on American debt would be the true end to “Too big to fail” and replaced with “Too big to rescue”.
- Ratings agency Moody’s downgrades Greece (sfgate.com)
- Moody’s downgrades Greece to lowest rating (ctv.ca)
- Moody’s downgrades Greek debt (theglobeandmail.com)
- National News: Agency rates Greece at rock bottom (coventrytelegraph.net)
- S&P: Greece in Default (Late to the Party Again!) (ritholtz.com)
- Greece | Unemployment and the State (jobmarketmonitor.com)
- Eurozone reaches deal on second Greece bailout after all-night talks (guardian.co.uk)
- Greeks try to keep the peace with their dwindling German tourists (guardian.co.uk)