Feb. 11 EU finance ministers gathered in Brussels for a two-day "informal" summit with the sole agenda: how best to help Greece avoid a default, and at the same time, assure stock markets that other countries in the eurozone with significant budget deficits, such as Ireland, Portugal and Spain, are still safe.
As the Economist has released to the press, will be published when details are available now consider the basic elements of a possible aid to Greece. The prestige of the EU under threat, because it is exclusively "European solution", with limited consultation with the IMF. It will work together under the leadership of France and less willing participation of Germany, the countries with the deepest pockets. Berlin is concerned that the salvation of Greece would only encourage further waste.
Concerted action will limit the political consequences that would follow the salvation of the country. Such cooperation would put pressure on Greece to reform and reduce government spending, as the indispensable conditions of salvation. However, the need for coordination hinders the implementation of decisive action, and bond markets are getting nervous. Probably, the financing will be limited enough to help Greece fulfill their immediate obligations (€ 20 billion of debt in need of refinancing in April and May). Assistance may be in the form of guarantees for refinancing of bonds or direct purchase of bonds for the salvation of Greece.
It is believed that one of the reasons why the IMF has kept away from these decisions, because its director, Dominique Strauss-Kahn (Dominque Strauss-Kahn) could be a competitor of the current French President Nicolas Sarkozy (Nicolas Sarkozy) during the elections in France 2012. If Europe is holding in the IMF, perhaps it is time to create a clone of the IMF - European Monetary Fund to address future funding problems. It seems now, this idea has supporters. Special response to the Greek crisis may partially reflect fears that the formal total staff, budget and ability to raise money for the capital markets are too rigid for many countries to unite them fiscally.
For someone to rescue Greece marked a new wave of global financial crisis. The first was the solvency of banks, the second is the solvency of sovereign nations. All the same problems of Greece in the field of public finance brewing before the failures began in the world's major banks. When the country joined the euro in 2001, its public debt has already shipped up to 100% of GDP. Despite the long boom brought on by low interest rates in the euro, Greece has done very little to solve problems with a permanent deficit.
Once the new Government has estimated last October that the budget deficit will amount to 13% of GDP, double the previous projections, the cost of borrowing for Greece began to grow. Holders of debt in the future were even more disturbed by reports that the debt of Greece was understated in order to maintain the outstanding invoices are not held on bookkeeping. Given the loss of confidence in the country, even tough the program savings, announced earlier this month, could not have him back.
Discussions on the plan to rescue the country have brought some calm to financial markets, although there is a risk that the lack of details can cause further cramping. Yield ten-year Greek bonds fell below 6% the day before the ministerial meeting, in late January, it rose above 7%. Euro, which is constantly falling against the dollar, a little excited.
Some EU officials (and more than a few people in Greece) feel that the euro area has been selected by speculators. They point out that the debt burden of Greece is not worse than in other parts of the developed world. The OECD believes that the public debt to GDP ratio in England and the U.S. will be higher than in the euro zone in 2011. The problem lies in the fact that the sources of anxiety such as Greece, with the economy below the average, it is not against spending credits granted them more frugal fellow.
These words may even be too soft. Debt holders are most worried about countries with large demand for loans, which are added to the commitments already made. In the future, they may be more concerned about the long-term prospects of growth of GDP. Repressed economies of these countries can not long keep the debt burden, the euro zone with the most bloated debt burden also face serious obstacles to growth. Fixing public finance - this is only the beginning of a necessary reform program.
As the Economist has released to the press, will be published when details are available now consider the basic elements of a possible aid to Greece. The prestige of the EU under threat, because it is exclusively "European solution", with limited consultation with the IMF. It will work together under the leadership of France and less willing participation of Germany, the countries with the deepest pockets. Berlin is concerned that the salvation of Greece would only encourage further waste.
Concerted action will limit the political consequences that would follow the salvation of the country. Such cooperation would put pressure on Greece to reform and reduce government spending, as the indispensable conditions of salvation. However, the need for coordination hinders the implementation of decisive action, and bond markets are getting nervous. Probably, the financing will be limited enough to help Greece fulfill their immediate obligations (€ 20 billion of debt in need of refinancing in April and May). Assistance may be in the form of guarantees for refinancing of bonds or direct purchase of bonds for the salvation of Greece.
It is believed that one of the reasons why the IMF has kept away from these decisions, because its director, Dominique Strauss-Kahn (Dominque Strauss-Kahn) could be a competitor of the current French President Nicolas Sarkozy (Nicolas Sarkozy) during the elections in France 2012. If Europe is holding in the IMF, perhaps it is time to create a clone of the IMF - European Monetary Fund to address future funding problems. It seems now, this idea has supporters. Special response to the Greek crisis may partially reflect fears that the formal total staff, budget and ability to raise money for the capital markets are too rigid for many countries to unite them fiscally.
For someone to rescue Greece marked a new wave of global financial crisis. The first was the solvency of banks, the second is the solvency of sovereign nations. All the same problems of Greece in the field of public finance brewing before the failures began in the world's major banks. When the country joined the euro in 2001, its public debt has already shipped up to 100% of GDP. Despite the long boom brought on by low interest rates in the euro, Greece has done very little to solve problems with a permanent deficit.
Once the new Government has estimated last October that the budget deficit will amount to 13% of GDP, double the previous projections, the cost of borrowing for Greece began to grow. Holders of debt in the future were even more disturbed by reports that the debt of Greece was understated in order to maintain the outstanding invoices are not held on bookkeeping. Given the loss of confidence in the country, even tough the program savings, announced earlier this month, could not have him back.
Discussions on the plan to rescue the country have brought some calm to financial markets, although there is a risk that the lack of details can cause further cramping. Yield ten-year Greek bonds fell below 6% the day before the ministerial meeting, in late January, it rose above 7%. Euro, which is constantly falling against the dollar, a little excited.
Some EU officials (and more than a few people in Greece) feel that the euro area has been selected by speculators. They point out that the debt burden of Greece is not worse than in other parts of the developed world. The OECD believes that the public debt to GDP ratio in England and the U.S. will be higher than in the euro zone in 2011. The problem lies in the fact that the sources of anxiety such as Greece, with the economy below the average, it is not against spending credits granted them more frugal fellow.
These words may even be too soft. Debt holders are most worried about countries with large demand for loans, which are added to the commitments already made. In the future, they may be more concerned about the long-term prospects of growth of GDP. Repressed economies of these countries can not long keep the debt burden, the euro zone with the most bloated debt burden also face serious obstacles to growth. Fixing public finance - this is only the beginning of a necessary reform program.
The Economist
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