Germany's Intransigence - Greece Gets Backing
OK - so it looks like the markets may be able to settle down from the latest fall out of the Financial Crisis: Europe's Sovereign Debt issues.
Europe offered loans at 5%, which is clearly better than the 7.5% they WERE receiving last week, as a contingency IF THEY NEED THE LOANS. They offered 30 billion euros worth and the IMF will probably come up with a guarantee of 15 billion more (and at even lower interest rates).
The problem for Greece is that at 7.5%, they would have a much harder time trying to lower their budget deficit, which is the basic goal.
Greece is not the only country with a debt over 100% of their GDP as Italy is as well. In addition, both countries have been over 100% since the beginning of euro trading (2000). Furthermore, Greece is not the only country with a budget deficit over 10% of GDP with Portugal, Spain, Ireland and Britain joining them. The euro agreement stipulates that a government may have no more than a 3% budget deficit!!!
However, Greece hid their issues from before the euro had even commenced until the newest administration was elected and took office. THAT announcement is when the bond markets took notice.
How much does Greece need? From Bloomberg.com:
Europe offered loans at 5%, which is clearly better than the 7.5% they WERE receiving last week, as a contingency IF THEY NEED THE LOANS. They offered 30 billion euros worth and the IMF will probably come up with a guarantee of 15 billion more (and at even lower interest rates).
The problem for Greece is that at 7.5%, they would have a much harder time trying to lower their budget deficit, which is the basic goal.
Greece is not the only country with a debt over 100% of their GDP as Italy is as well. In addition, both countries have been over 100% since the beginning of euro trading (2000). Furthermore, Greece is not the only country with a budget deficit over 10% of GDP with Portugal, Spain, Ireland and Britain joining them. The euro agreement stipulates that a government may have no more than a 3% budget deficit!!!
However, Greece hid their issues from before the euro had even commenced until the newest administration was elected and took office. THAT announcement is when the bond markets took notice.
How much does Greece need? From Bloomberg.com:
Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year’s deficit.NOW we shall see how the markets react - Fitch rating company lowered Greece's sovereign bond debt to BBB- on Friday. That's one grade about Junk Bond status. Their rationale was that Europe still had no plan to help Greece.The debt agency plans to offer 1.2 billion euros of six- month and one-year notes tomorrow, in a test of investor confidence.
Greece is likely to need money by the end of April, said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc. Noting that the budget cuts threaten to cripple the economy, he said in a research note that “this thing is unlikely to go to bed anytime soon.”
Comments