Further Greek Tragedy

By: Mike Campbell

The Greek government has outlined various measures to help them master their debt crisis. The moves are naturally unpopular with the Greek people since they will bear the brunt of the hardship that they will certainly entail. The scale of the Greek debt crisis is such that it has shaken confidence and led to ratings agencies such as Standard and Poor’s and Fitch to downgrade the nation’s credit worthiness. The practical implication of this is that Greece is having to pay twice as much as Germany to borrow the funds it needs to service its existing debts. The Greeks must refinance more than €50bn of debt this year with €20bn required by the end of this May. The Greek deficit is four times larger than the level permitted under single European currency rules.

The Bank of Greece has suggested that the government’s estimates for the decline in national output in 2010 may be overly optimistic; hardly the best news. The government believe that the economy will shrink by a further 1.2 to 1.7%  this year, whereas the bank’s estimates put the contraction at 2%. They think that the public spending cuts that Greece needs to make will exacerbate the contraction. The Bank is firmly behind the government’s austerity measures and believes that they are necessary to break the country out of the vicious spiral that it finds itself in.

There will be an EU summit meeting on Thursday, but it is unclear if any concrete measures to help ease the Greek debt crisis will be put forward. The German position is that Greece can manage its own problems and although it has made it clear that they will act to promote Eurozone stability through whatever means are necessary, they seem reluctant to act right now.