By: Mike Campbell
The Greek government has announced the moves that it is planning to take to reduce it mountainous debt problems and steer the deficit towards the acceptable level for a Eurozone country. Unsurprisingly, the plans are unpopular with the populace as they have to bear the brunt of the hardships that will ensue. Concern about the Greek debt and whether or not the Greeks can manage it without defaulting has led to a run against the Euro on currency markets, with wild speculation in the margins that Greece could even be expelled from the single currency group. Against this backdrop, the credit worthiness of the nation was downgraded by credit rating agencies Fitch’s and Standard and Poor’s. The consequence of this move was to make it more expensive for Greece to borrow money (the greater the perceived risk in a loan, the higher the interest rate demanded). Whilst the austerity moves are intended to reduce the underlying debt, Greece still has to find the money to service its existing debt which means that it needs to go to the market to secure funds.
The Greek government has announced the moves that it is planning to take to reduce it mountainous debt problems and steer the deficit towards the acceptable level for a Eurozone country. Unsurprisingly, the plans are unpopular with the populace as they have to bear the brunt of the hardships that will ensue. Concern about the Greek debt and whether or not the Greeks can manage it without defaulting has led to a run against the Euro on currency markets, with wild speculation in the margins that Greece could even be expelled from the single currency group. Against this backdrop, the credit worthiness of the nation was downgraded by credit rating agencies Fitch’s and Standard and Poor’s. The consequence of this move was to make it more expensive for Greece to borrow money (the greater the perceived risk in a loan, the higher the interest rate demanded). Whilst the austerity moves are intended to reduce the underlying debt, Greece still has to find the money to service its existing debt which means that it needs to go to the market to secure funds.
Greek prime minister, George Papandreou is to meet with President Obama and is expected to ask him to take steps to end speculation against Greece which is forcing the cost of Greek debt higher. He met with German Chancellor Angela Merkel recently who voiced her support for Greece and stated that Germany would work with Greece to help it modernise its economy. She reiterated her confidence that Greece would not default on its debt. It is clear that Germany has no plans at present to bail Greece out financially. Similar, perhaps warmer words of encouragement were offered by French President Nicolas Sarkozy when the two men met on Sunday. He also voiced his dismay with speculation against Greece saying that it was artificially raising the cost of Greek borrowing. Of course, actions speak louder than words.