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Greece: One day at a time

Stephanie Flanders | 12:41 UK time, Monday, 12 April 2010

In their approach to the Greek crisis, European officials have taken the time-honoured route of taking it one day at a time - with the financial markets always several steps ahead. They hope to have broken the spell yesterday, with the new statement hammered out, over the phone, by eurozone ministers and officials.

Will it work? The British election is taking up a lot of my brain-space today, but some quick thoughts.

As I said on the Today programme this morning, this deal has three key features which the previous two statements of support (in February and March) did not have.

First: there's the higher headline figure: the ministers agree that "up to 30bn euros" could be made available to Greece by the eurozone group, up from the 22bn euros mentioned previously. There will be IMF money on top of that: the number being bandied about is 15bn euros, but I'm told to expect a higher total figure.

If so, European officials will have at least learned one lesson from past IMF-assisted bail-outs: when the package is formally unveiled, it helps if you can give the markets more than they expected.

Second, and crucially, we have a sense of the interest rate that Greece would be charged. For a three year fixed-rate loan, the statement implies that Greece would be charged the Euribor three year swap rate plus 3% - which would come out just under 5% at current market conditions. There would also be a one-off service fee of up to half a percentage point. The IMF money will be much cheaper, taking the average cost down to under 4.5%.

That is not cheap. But it's a lot better than the 7% the market was charging Greece on its bonds late last week. It is also probably the lowest that Germany could support.

That, of course, is the third key attribute of the new agreement. Unlike the previous statements to be drip-fed out of Brussels and Frankfurt, this one has Jurgen Stark's fingerprints all over it. In the past week or two, I'm told the German representative at the ECB has been a key part of the negotiations, second only to the ECB President, Jean-Claude Trichet.

Germany has not dropped the rather strange idea that Greece should pay "market rates" for its money (I say strange, because if it could pay market rates, it wouldn't need the money at all). But they have accepted a distinction between the "market rate" demanded by an hysterical European sovereign bond market, and a market rate suggested by the fundamentals.

Does 5% capture the "underlying" value of Greek debt? No-one can say. But we can say that in pricing Greek debt, investors are not - and should not be - ignoring the possibility of a Greek default. In that sense, the eurozone money is "cheap". Whether it is cheap enough to transform the situation for the Greek government is a more open question.

The questions for the next few days are: first, what exactly are the conditions of the support plan, and how soon could it be triggered? That will be especially important for Germany: Chancellor Merkel is apparently still hoping, against the odds, to avoid sending any money out the door before the state elections in North Rhine-Westphalia on 9 May, which could lose her party its majority in the Bundesrat. But if the next few days do not go well for Greece, its prime minister may well want to speed up the pace.

Second, and related, will the IMF require the Greeks to tighten policy a lot further in the next year or two? My guess is that the answer to that question will be no. But it will want the government to commit to longer term structural reforms to increase its competitiveness which could be even harder, politically, for the Greek government to push through.

Third, and the most important question - also the one most likely to be glossed over in the coming weeks - is whether this gives Greece a better chance of coming out of this with its economy, and its standing as a sovereign borrower, intact. As I have said before, a loan package, in and of itself, doesn't lastingly address either Greece's debt problem or its competitiveness one (see my posts of 9, 10 and 11 February). It simply buys it some liquidity, and some time: in this case, slightly less time than might usually be the case with this kind of programme, because of the higher interest rate.

In debt crises, time is a precious commodity. With luck, this deal will help Greece get through to the end of the year - maybe further. Its banks will also be helped by the ECB's decision to continue to accept lower-rated debt as collateral for cheap liquidity in 2011. (As I said on 3 March, distasteful though it might be to give backdoor support to the Greeks, the ECB was never going to let Greece's fate be determined by the decisions of a single American-owned ratings agency.)

But, in the cool light of day, I suspect that many investors will still look at the state of the economy and the public balance sheet and conclude that, sooner or later, Greece's time is going to run out.

Update 1817: Several of you have queried my use of the word 'hysterical' in relation to European sovereign bond market. You have a point.

Given what I - and others - have said about the severity of Greece's problems, it is probably rational to require a very high return on Greek debt. But in my defense, I was describing how the Germans might rationalise charging the Greeks a "market rate" that is less than the rate actually prevailing in the markets. As you know, senior German officials think that market hysteria - and speculators' greed - are responsible for a great many economic ills.

Then again, it was Germany that was most wedded to the "no bail out" clause for the Eurozone, and it is Germany that is most keen to reinstate it as soon as governments feel they can let a country default wuthout putting the entire system at risk.

If you believe, as they do, that default should be a genuine possibility, then the 7% starts to look very sensible indeed. But, as we've seen, we are not (yet) in a world of messy Eurozone defaults. We're in a world of messy Eurozone bailouts.


  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    I do not understand why the European Central Bank should not be ordered to support Greek euro denominated bonds and any other Eurozone member's bonds that come under speculative attack. The ECB could generate any amount of euro credit required, with no cost whatsoever to Eurozone taxpayers. The only risk would be to the exchange value of the euro, which is arguably too high at the moment anyway, and causing problems, in particular, for German exports.

    The fact that this obvious solution is not being used, implies that the French and German governments are seeking to force the Greek government to adopt their own right wing economic philosophy. This is clearly undemocratic and therefore very dangerous.

    The Eurozone badly needs a directly elected federal government which could legitimately make such decisions. Now that it appears that the UK and the other anti-federalists are unlikely be persuaded to join the Eurozone in the near future, they should go ahead and form one.

  • Comment number 3.

    Whatever happened to the "no bail out" clause in the original Euro agreements? Is it simply to be ignored?
    Why is the view of the German Constitutional Court no longer seen as a potential blocker?
    Has the motion passed unanimously by the Dutch parliament that not a cent of Dutch money is to be used to bail out the Greeks been revoked?
    Are Merkel et al, in their quest for glory, simply beyond the control by their respective national institutions?
    And, if the Greeks call upon this money, how are the other Euro-zone countries going to fund the loans?

  • Comment number 4.

    Dollar goes up, it's a great sign of the strength of the US economy. Dollar goes down, it's smart thinking to boost exports and cheapen public debt.

    Euro goes up, it's a crisis for tourism and industry. Euro goes down, it's a weakening, failing currency that can't afford to pay for its commodities.

    I don't understand why the British press, in general, take this attitude. Ever get the feeling that some people just don't want the Euro to do well?

  • Comment number 5.

    So the bond market wanting 7% is "hysterical" but 5% isn't?

    Problem - Greece cannot pay its debts.

    Solution - Lend Greece more money!

    And I guess now the precedent has been set at 5%, we can all look forward to Spain, Portugal, Italy etc.. going cap in hand when the bond markets have pushed them up to 6%.

    Greece has done very well with this. This is a party where the first one with the begging bowl is definitely the winner.

    This will end badly.

  • Comment number 6.

    Greece: One day at a time until the G-20, June in Canada
    Will it work?
    Yes, the overall plan will work, but the whole of the plan has not yet been revealed.
    First: The EU will NEVER accept one dime of IMF money - too many privitization rules and cuts to social spending. This IMF prospect was likely inserted into the deal to protect Merkel from being (too) lambasted at home.
    Second, the interest charged (on whatever loans may be made to Greece) is moot if Greece never makes the loans. Also, as you say, it’s the lowest that Merkel could support without putting her head on the block.
    Third, indeed, this initial planning has Jurgen Stark all over it.
    So who is Jürgen Stark? - German economist, Member of the Executive Board of the European Central Bank, responsible for Economics and for Monetary Analysis, comes from the Bundesbank, whose inflation fighting success record the ECB is consciously trying to imitate - but best of all, Jurgen Stark believes (regarding the subprime mortgage bail-outs) weak banks should have been allowed to disappear from the market.
    Your questions for the next few days are:
    First, don’t look for any loans to be triggered before the G-20 in June.
    Second, the IMF will never require anything from Greece because the IMF is not welcome in Greece or anywhere else in the EU. This aspect of the loans may have been inserted simply to provide cover for Merkel when she must face the German constituency.
    Third, Greece would not be having all this trouble with her sovereign debt (nor would Spain, Portugal, Italy and the UK) IF a certain country had not been trading credit default swaps and betting that the ledning country would default. As you say, a loan package, in and of itself, doesn't lastingly address Greece's debt problem…
    But the EU has the best financial minds in the business, and you can bet (Please not with a credit default swap!) that there is one plan afoot for public consumption, and another plan that will be presented at the G-20. Do you think the EU – people like Jurgen Stark – do not realize what has made Greece so sick and what is necessary to cure her?
    There will come, mark my words, a bank levy (likely a Tobin Tax) at the G-20 and such a tax will provide a computerized audit trail that will be very good at untangling credit default swaps and unregulated derivates. Out of the implementation of this tax will come screams, lamentations and threats from the United States. Do you think that the EU can be threatened by the likes of the Wall-Street bail-out boys?
    Yes indeed, one day at a time till the G-20 in June.

  • Comment number 7.


    "The British election is taking up a lot of my brain-space today". Perhaps you need a bit more space up there or maybe we could download a English language software package to take the pressure off your RAM.

    Anyway, why do you feel that "increasingly hysterical European sovereign bond market" is pricing Greek debt too highly. The market is fairly cold and rational on this. They can get 5% from much less risky propositions or as much as 12% from far more stable emerging market economies in local currency giving a further hedge against the Euro or Sterling for that matter.

    The hysteria is else where and it is coming from the European leaders and the Greeks themselves screaming lend us now or we will default by autumn.

  • Comment number 8.

    Hi Stephanie,

    The problem I have with all of this borrowing is "Business Models".

    No politician seems to understand that like a business, a country has to make a profit in order to pay for its public sector services.

    The UK is in the same state as Greece on borrowings, the only get out of jail for the UK is it has had its own currency to print money.

    When are we going to adopt a profit and loss measurement rather than Growth measurement??

  • Comment number 9.

    The Greek loan likely delays the inevitable.
    The inevitable being:

    Printing more Euro’s and giving them to Greece.
    Other Euro States giving Greece money.

    However no bailout = no European Union
    No European Union = No need for Euro politicians.

    The really painful question is exactly how much poorer are we all going to be when all the overhang of sovereign, corporate and personal debt is finally addressed, whether by printing more money or attempting to pay it back?

  • Comment number 10.

    never mind the rate Stephanie - the amount is pitiful.

    Greece's GDP in 2009 was anout $300 Billion according to the CIA factbook (that's a US Billion, not a UK one)

    So promising to lend them 30 Billion Euros(or about $50 Billion) is like a drop in the ocean. Especially when your income is declining by about 6 Billion a year (2009) and which has a public debt of about $405 Billion.

    I also saw this little admission
    "But they have accepted a distinction between the "market rate" demanded by an increasingly hysterical European sovereign bond market and a market rate suggested by the fundamentals." you're saying the markets are wrong here Stephanie?

    Oh the lord God of markets will not be pleased with you - he may be upping your borrowing rate as we speak to punish you for such blasphemy.

    Is it hysteria? - or is it reality?

    Don't ask me, I'm not a market - nor am I a fundamentalist. What I do know is that people who lend and ignore the risks always come off badly.

    So where is the handout for the other PIIGS?

  • Comment number 11.

    The ECB and IMF loans are like painkillers, they dull the immediate discomfort but do nothign to treat the underlying condition.

    There is still no credible plan to get the deficit down to sub 3%, which is why the bond market is pricing greek soverign debt at 7%+

    Same could happen in the UK if we dont get ourselves a credible plan to get our deficit down to internationally recognized safe zone, aka 3%.

    halving it to 6.5% in 4 years is not terribly ambitious and wont do much to calm the bond market (unsurprisingly)

    people better steel themselves for post election day, whatever party wins power, there is going to be some real austerity. Politicians avoiding the discussion doesnt prevent it happeneing.

    Events dear boy, Events!

  • Comment number 12.

    294. At 12:12pm on 12 Apr 2010, MezzoneWright wrote:

    "We like the fact that you haven't been "brain wiped" and we would encourage others to prepare for the coming events that will follow."

    ...just look up BOB (Bug out Bag) on You Tube and see how many Americans are already in serious preparation.

    There are too many of them to be simply 'nutters' and they're Americans so there is no chance they are Marxists or Anarchists.

    No these are ordinary Americans who have played along but who now realise the game is up and they have worked out what the consequences will be and more importantly - how harsh they will be.

    This is the worlds longest and deadliest Economic car crash - the Greek tragedy is merely a small part of the 'loss of control' all nations will be feeling soon.

    ....lets hope the Californian earthquake doesn't happen in the next 2 weeks as predicted.

    The sea lions left because the anchovies went - and we call them the 'dumb animals'? - at least they know when it's time to leave....

  • Comment number 13.

    Time to say goodbye to the Euro. No matter what they do now the end is nigh. Within the year Spain and Portugal will come knocking and we will see social unrest in Ireland (why did they bother!). The German public will show how upset they are in the May 9 election.
    No doubt in my mind. They just killed the euro.

  • Comment number 14.

    Within reason the EU will do its utmost to support Greece. Any other course would put a big question mark over the future of the EU and neither Germany nor France is going to stand idly by on this one.

    We shouldn't assume that the EU can't sort this out either. There are some very talented people on the other side of the English Channel.

  • Comment number 15.

    You said : "the ECB was never going to let Greece's fate be determined by the decisions of a single American-owned ratings agency.". If the opinions of ratings agencies can be ignored - and if so, fine - why does the BBC spread so much anxiety speculating about the views of these ratings agencies in relation to the UK economy ? Caledonian Comment

  • Comment number 16.

    Interestingly, the discount rate for the major banks is 0%. But like the vultures that they are, they would like to make money on the crisis that thye created. The banks wish to make everything as difficult as possible as they lobby against the regulatory reforms that would prevent another grand theft on their part. The immediate impact of the financial collapse is over but the residual casualties continue. For any other industry effigies would be hung from lamp-post on every corner, but they have the governments to protect them so no one will be blamed. Greece and others are being blamed for poor financial managment, the banks are not. This says more about the modern structure of power and politics than anything else. Greece must tighten its belt but banks can pay bonuses. I would think under current standards the President of Greece would be due a bonus.

  • Comment number 17.

    greece, greece, greece...there's a question on my brain about greece's current debt situation. where were the economic forecasters who are so keen to put in their two cents now? didnt the government realise at an earlier stage that they would be in a debt-hole? couldn't anyone from the finance or economic department predict that such would happen? its a bad situation and the reality is that it will only get worse. not casting blame on the government though. sometimes these things happen but foreshadowing the outcome would have been welcome. as the saying goes "it's better to measure ten times and cut once than measure once and cut ten times". now greece can only hope(which in my opinion is helpless at this stage) that they can deal with this debt issue before they have to accept the loan package from their eurozone partners.
    As for the package itself it seems pretty much acceptable;the rate is less than elsewhere, at this stage that shouldn't be a debatable issue as greece really has no choice. if, in fact, when they accept the loan package i'm hoping that it is made abundantly clear that the loan alone cannot get them out of the debt and that other stringent economic policies also need to be undertaken coupled with careful decision making concerning borrowing practises and purchasing. an inflation would not be welcome either. i'm seriously a bit worried about the outcome of greece's economy in the up coming years. this loan package seems to be a little push towards eliminating that huge debt. bigger issues await. careful planning to greece's government, careful planning!!!

  • Comment number 18.

    Who will be the first to shout the emperor is naked? If Greece defaults then it would be the first in a long line. Even Wall Street will gurgle and splutter. Greece will be saved.
    Try reading the New York Times if you get chance and in particular their DealBook - a real eye opener. Was the Eurozone support offered because Fitch downgraded them to BBB- on Friday? An investment grade but only just? Cost of capital is king, if not emperor; the only problem is it is so nakedly greedy.
    Oh yes and our debt grade is.............still AAA but did you know our ten year bond yields are now more than Italy (which I think means the "markets" trust Italy's position more than ours)?
    Hung parliament - why not? It couldn't possibly be worse than one that isn't hung!

  • Comment number 19.

    Once all the details are out there we will see what effect this will have. If this is seen as a cheap way of getting "the money" will other PIIGS follow - they surely will go for this option rather than the IMF.

    The big question is will Greece turn the corner or is this just a stay of execution?

    If it is the latter, which I for one am afraid it is then this will bring into question the sense of taking this action especially when the piper will have to be paid.....

  • Comment number 20.

    Provided the Greek debt is not monetised (which would be unlawful under the treaty and very unpopular politcially outside Greece), the options are fairly clear.

    If the market doesn't want to lend to Greece at an affordable rate, then either a) Greece defaults, b) adjusts quickly or c) the IMF and ECB lends (with conditions) and allows it a bit more time for adjustment.

    There is a bit of hysteria over defaults. Countries are always defaulting on debts. Did I imagine it, or is it the case that only about three countries in the world have never defaulted on soverign debt (and the UK isn't one of them)?

    If true, then after a while even countries that defaulted get access to financial markets...A bit of cash on delivery for a while and then markets forget.....

  • Comment number 21.

    The market is fuelled by greedy people who are addicted to hoarding theirs and every penny,euro and dollar they can accumulate by any means.Gamboling with other peoples and countries futuresmean nothing to them,only the next deal and the next company they set up to carry the debt for the consequences of their lust for money and status it gives. I cannot go to my neighbour to pay for my gamboling debts ,so why are we being held to ransom by these people ?

  • Comment number 22.

    It is worth repeating what I say to the Greeks - give two fingers to hard nose anal northern Europeans, make a drachma out of a crisis and get out of the Euro, devalue by 50% take control of the economy protect the poor, borrow from the IMF (or anyone) start a programme of public works to mop up youth unemployment, employ redundant/retiring HMRC staff to cheat proof the taxation system with swingeing penalties for abuse, fleece the tourists especially the teutons." It needs to be recognised that for countries like Greece continued membership of the Eurozone is incompatible with with a development path that suits the Greeks. May be this will suit the Portugese and others also.

  • Comment number 23.

    How right “Dirty Idea”
    “Euro goes up, it's a crisis for tourism and industry. Euro goes down; it's a weakening, failing currency that can't afford to pay for its commodities”.
    When it comes to Europe from a UK perspective, everything bad happens or comes from Brussels.
    Recently the Euro was reported down against the Dollar, at the same time the pound was doing even worse! Stephanie did not mention the pound on that day when she was on the “Today” Programme.
    Do I detect a little Eruoskepticism here Stephanie?
    I am a “Euro consumer” … it’s made my life so much easier, crossing borders each day, not having to think about which money I have to take. Even my holidays in Spain give no pain … and on top of that my mortgage is fixed at 3.54 % for thirty years.
    So “Openyoureyes” do just that, the Euro will be around for much longer than you.

  • Comment number 24.

    Very insightful article. One bit that I like, as it also applied particularly more aptly to Britain is this -

    "As I have said before, a loan package, in and of itself, doesn't lastingly address either Greece's debt problem or its competitiveness one (see my posts of 9, 10 and 11 February). It simply buys it some liquidity, and some time: in this case, slightly less time than might usually be the case with this kind of programme, because of the higher interest rate."

    As many have said in this blog, it is not just the deficit that is the problem besetting, it is also the total debt and it's interests and repayments as well. If these issues are not addressed, we may well end up just like Greece, trampled under by the IMF jackboots !!

  • Comment number 25.

    Valid points Stephanie.

    Greece would do well to take up the offers and put serious measures in place to go forward - collecting taxes amongst many.

    As you say, shame that the Credit Ratings Agencies have never been properly investigated and grilled as to their "insider relationships" with their paymasters - especially foreign owned ones.

    I guess its now down to the "hedge funds" and see if they play ball or as usual, "chuck their toys out of the pram"!

  • Comment number 26.

    Why are so many here taking the position that Greece is the victim in all this? Greece is the perpetrator of her own malaise. She got herself into this mess and now is forced to go, begging bowl in hand and try and get the rest of the single currency nations to bail her out.

    Sorry but I have very little sympathy for a nation that basically fiddled their books for near on a decade in order to tap into the benefits of EU member status.

    likewise I have little sympathy for our own HMG who have been cooking the books for a decade and who now have to make austerity measures that goes against the very fibres of their DNA (Labour party).

    And the people are equally to blame, we keep consistently voting in these compulsive liars that we call our national leaders!

  • Comment number 27.

    There is a business saying that I have found to be almost always true,though I confess to ignoring it on more occasions than I like to admit.
    That is that "First loss is the best loss"
    It is undoubtedly true in this case

  • Comment number 28.

    It will not buy anything except a temporary rally for the Euro. Currency traders will go back to shorting the Euro in a few hours.

    Pimco are not confident of the greek rescue..

  • Comment number 29.

    Right so Greece is effectively Bankrupt, and "Hey - Presto" those Countries within the Euro Currency Zone have argreed a 30bn Euros loan to save the Greek Economy and Nation from total collaspe, and undoubtedly any Total knock - on effect with totally collaspe the Euro, - Period.

    I completely fail to see HOW in the immediate future Greece is going to be able to pay - off any of the Interest on the Loan [ Let alone the Loan proper ], it has just receive, and also further still any past Interest off of the Loans already outstanding prior to this further injection of Loaned Cash, that will no doubt speed - up the Day again when Greece returns once more to "Cap - In - Hand" back to the others within the Euro Currency Zone for yet still a much larger future Bail - Out, in what will turn out to be an endless Circle of Bankruptcy for Greece.

    So far to-day we hear that the value of the Euro has risen, but given what will now be an endless round of those Countries that make - up the PIGS - namely, Portugal, Italy, Greece and Spain, getting into financal trouble, we are now all sitting on the edge of our Seats just waiting to see which one of the wider PIGS Countries fail next.

    I can see the Euro crashing within the next few Weeks / Months, for it is NO WAY substainable for both/either France and/or Germany to be in any position to afford what will become a Circle of endless Bail-Outs to the poorer Nations within the Euro Currency Zone.

    This will have repercussions for the UK in that Sterling will rise on the back of a weak or bankrupted Euro, which will start another Recession, or in the Case of the UK a Double - Dip in Recession, while the Euro Zone will contract in the size of its overall spending due to a further Debt Crisis over the Greek and others within the wider PIGS Economy.

    This of course is the last thing the World needs, for while the last Recession was caused by a Banking Crisis, this next pending Crisis will throw the World Markets into turmoil when the Euro finally Crashes.

  • Comment number 30.

    This is the beginning of the end for the Euro

    Just to get to this rather small amount of progress has seen German teeth gritted and several disagreements, or else, surely this would have been done sooner, to reduce the profile of

    It breaks the rules of the Euro, and I still am astonished that people believe we should have joined it, still should, and will


    The Germans have too much control, in what is supposed to be an equal Europe

  • Comment number 31.

    Dear Stephanie

    maybe you could explain that. The American "rating agency" FITCH on Friday and as rumours for a bail out were circulate dowgraded the status of Greece by two notchs... so for the first time in history as the FT commented FITCH was grading one country 2 and 4 levels respectively below the other two "rating agencies". With the tradition of the ratings not to be different by 1 maximum 2 level this is strange the least...
    On Monday (i.e. today 12/04/10) the same rating agency rushed to downgrade (again) the cover bonds of 3 Greek banks.

    Did the put the wrong bet?... did they not have sufficient time to hedge their bets...?

  • Comment number 32.

    Any money lent to Greece is a gift you will get nothing back except perhaps Greek Hospitality.

  • Comment number 33.

    Personally, as a middle-class (god I love this middle class hysteria these days) Greek I'm not better off than before the Eurodays. In a night things got as expensive as Germany and the wages slowly followed.

    If anything, I can afford less trinkets nowdays with petrol & food having hit sky-high prices. Having said that, a certain percentage of people that had big investments here seem to have benefited, at least judging by the amount of Cayennes in our roads.
    So yes, I would have no objection going back to a drachma that makes sense to be honest, but at the same time I suppose that it would spell the end of Euro, and the idea of a European Economic Union appeals to me at least. It is nice to be able to travel from EU country to Eu country and not having to change money etc, I suppose people in the UK cannot understand how easy it has done things in mainland Europe.

    And that's even though we are practically the very edge of Europe with no intermediate land borders and being currently swamped with immigrants. Though Greece is not their 1st choice they tend to stick around for long enough so that the capital is now completely overwhelmed.

    If you think its bad in the UK, take a trip southwards...

    No complaints though for Greeks, this was long overdue and everyone here accepts it. Though our current socialist goverment was elected something like 6 months ago they are on the job (it seems). They've got something like a 70% acceptance rating. Public servants practically lost 20% of their wages overnight, recruiting is stopped (the market with it lol) and generally I think we're in for a nasty couple of years. I suppose this will be the only case where a socialist goverment is called to clean up a right goverment's mess, but hey, previous guys were very "american" school. I mean, this book "massaging" and the like were taught to them by someone yes?

    Right now, the situation is so volatile, that the slightest hint of economical mismanagement/corruption/scandal from the goverment threatens a riot. So, at the moment they are being extremely cautious. Perhaps this is better and will enforce a fair-er series of measures.

    That is if you consider fair having to pay for banks' and other financial institutes' gambling - they do not have trouble leasing 6 litre cars for their execs. I suppose their work is more important than mine's, a lowly Mech Eng. Yeah, I forgot, I build worlds, they bring 'em down.

    Let's hope that global recovery will start up so that the 2 main contributors to this bascet case of an economy (tourism - shipping) may bring in revenue. Currently they're both rock bottom.

  • Comment number 34.

    With Greece, PIGS and the EURO so high on the agenda it is important not just to examine the 'fundamentals' of political announcements to determine where the short and long term value of the Euro is heading. At Tradewavelive we are blogging for all to read for free, giving key access to institutional quality market analysis that explains where the EURO is heading.

    This is a blog article we wrote back in the middle of February - yet the content remains relevant and important still today.

    The Euro is a currency in its infancy and is facing its first most damaging theoretical challenge. It is the official currency of 16 of 27 member states. This is quite different from the US which is a single country divided into 50 states. The European Union is now imposing its will on Greece - a sovereign state - demanding it reduces its debt burden and balances its books. In adopting the Euro, Greece gave up some key 'last-resort ' levers - for example, the ability to devalue its currency and to start the printing press. So we have a building tension between national interests and awkwardly fitting federal interests.

    As I begin writing this I am sat on an easyjet plane waiting to fly off skiing for a week. Listening to and reading the news its awash with the problems of PIGS - no this has nothing to do with animal farm but everything to do with Portugal, Ireland, Greece and Spain.

    Of these Greece is today's headliner, verging on sovereign debt default and bankruptcy. What a topsy turvy world we live in! We have spun from proclamations of a continuing golden legacy of 'no boom, no bust' policy measures to the deep depths of financial despair. Then we are reliably informed that we are on the road to recovery and yet we are hit with a succession of worldwide problems that suggest otherwise. Does this honestly demonstrate that the political and economic elite know what they are doing? Surely a contributory factor is career based professionals without real world experience and success?

    Think about what has happened for one moment. First, a major commercial bank, Lehman Brothers, inordinately leveraged and globally exposed was allowed to fail. This was swiftly followed by an endless queue of other banks - but this time - too big to fail being bailed out by the taxpayer. Public money has since been thrown like confetti at insurance companies, vehicle manufacturers and profligate governments. Phew, what next? Well, it seems the answer is already on its way: a sovereign entity - Greece. A country too big to fail! A country that has continued to live in excess of its means: spending and borrowing much more than it earns and can conceivably pay back. Sounds familiar?

    The reason this is so important to us is because we have started to trade the Euro. Now some will argue that "this is fundamental stuff and I am a technical trader and everything I need to know is on the charts". While there is a small element of truth to this, it is simply too limiting. Naivety is not a guarantor of success. I recall a prominent trader once told me that he would never bank with anyone other than the Bank of America as it was too big to fail. I imagine he had many sleepless nights. Without a sound knowledge of the fundamentals, you can neither hold such beliefs nor make such sweeping statements. So take an active interest in economic and political events.

    Questions you should consider and may wish to comment on:

    'What are the consequences should Greece default?'

    'Which other countries face massive deficits and what are their prospects?'

  • Comment number 35.

    Max at 28 - it isnt that simple there is a lot more than just the fundamentals to decide which way the market is moving. You can read our indepth analysis of where the EURUSD currency pair is headed right here... there is so much more to consider than just the situation in Greece. For sure it is a critical time but there are other multiple factors to take into consideration.

  • Comment number 36.

    "This is the beginning of the end for the Euro"


    The usual hysterical nonsense and complete lack of proportion.

    The only PIIGS facing any real problems are Greece and Portugal.

    Some facts (2009 figures):

    Greece GDP is ONLY 2.1% of the EU GDP
    Portugal GDP is ONLY 1.4% of the EU GDP
    Ireland GDP is ONLY 1.4% of EU GDP
    France and Germany GDP is 36.1% of EU GDP
    Over 300 million Europeans use the Euro

    It really is the best show in town, the one where the Eurosceptics display almost manic delight at even the slightest wobble in Euroland. What could it be I wonder, jealousy at the higher standard of living and quality of life, inferiority complex, hatred of Johhnny Foreigner.

    Or just trying to deflect attention away from the deficit and the impending arrival of the IMF on UK shores.

    The Euro will outlast sterling simply because the UK will be in the Euro sooner than you think.

    Calm down, Eurosceptics, calm down.

    More chance of a meteriorite wiping out Birmingham than the collapse of the worlds 2nd major currency.

    "The Germans have too much control, in what is supposed to be an equal Europe"

    EU voting power is based on population size; admittedly the Germans did a bit of preparation 70 years ago by reducing the population of its neighbours. But alls fair in love and war, etc.

  • Comment number 37.

    10. At 2:12pm on 12 Apr 2010, writingsonthewall wrote:

    "I also saw this little admission
    'But they have accepted a distinction between the "market rate" demanded by an increasingly hysterical European sovereign bond market and a market rate suggested by the fundamentals.' you're saying the markets are wrong here Stephanie?"

    No dude, she's saying that they're ramping up interest rates to try and force Greece to default, because they've stocked up on Credit Default Swaps on Greek debt - a bit like me trying to burn you house down after taking out an insurance policy on it. Only, that would be illegal but the deal with Greece is not. (They bought the insurance, but not the debt!)

  • Comment number 38.

    "But they have accepted a distinction between the "market rate" demanded by an hysterical European sovereign bond market, and a market rate suggested by the fundamentals."

    So if I read this correctly, the "fundamentals" as deduced by the economic pundits are more accurate than the market, when it comes to valuing risk.

    That is an awesome statement, in the political context. It states outright that a certain group of professionals knows more about risk than the market.

    Why not have them in charge, then?

    Call them communists, Dukes, Grand High Visionaries of the Light. Call them whatever.

    Once you start believing that select groups of individuals know better than the market, it is but a short step in reasoning to advocate for this select group of worthies to control the market, and set its terms.

    Now Stephanie, perhaps you would care to indicate when precisely in history a select group of worthies have been better able to manage an economy than the market?

  • Comment number 39.

    LondonHarris wrote:
    "I completely fail to see HOW in the immediate future Greece is going to be able to pay - off any of the Interest on the Loan.."

    Hey, who cares?

    If the people spending our childrens' wages on these schemes really cared about that sort of thing, we would never be in the current situation.

    Stop thinking about the future, Harris. Nobody else is. Short term profit is the only thing that has mattered for many years now, and people who wonder about running governments without perpetual debt are idiots and unfashionable spoilsports.

    Borrow, tax, spend, repeat.

    It is all you need to know, and more than you need to understand.

  • Comment number 40.

    It's oh so easy to accuse the Greeks of "living beyond their means" and to self-righteously say "they deserve the misery they put themselves in".

    Are there ANY European countries that are not in debt? And is this epic borrowing not just exactly what 'the banks' have always loved, so that they can line their pockets with vulgar sums of money?

    This rigged capitalism of the utterly-free variety is on the verge of destroying society - or at least the parts it hasn't already trashed - and yet still nobody can come up with a better system?

    So much for human intelligence...

  • Comment number 41.



    Just because I disagree with you it does not make my view nonsense, or hysterical

    Behave yourself

  • Comment number 42.


    In response to your rather crass comments about population reduction, had the UK and USA not met Russia halfway into Germany, there wouldn't be much of a Germany left

    You should be ashamed of joking about such matters

    Especially after accusing all sorts of people of being right wing etc...pathetic

    Instead of boasting about all things German, and attacking the UK, when you don't even live here (you love it that much) then maybe you can consider that before your next litre of altbier

    I am not a Eurosceptic, I just hold the view that the Euro is flawed and will fail

    You hold a different view

  • Comment number 43.

    Of course this show of support will 'work' in the sense that the markets aren't going to implode because of a sovereign nation defaulting on its debts. Really, there wasn't any option. Its like the bank bailout, despite the nihilists on BBC blogs who believe that the worlds financial structure is doomed anyway so all attempts to prop up the system are simply delaying the great day of reckoning, actually offering tangible evidence that the Eurozone won't allow one of its weaker members to bring the whole edifice crashing down is all that the markets wanted to see in order to restore equilibrium to the system. There isn't going to be a meltdown, the infinitely malleable taxpayers of the western democracies (and Japan)can be called upon to put out any potentially disasterous fires..sorry to dissappoint so many of you!

  • Comment number 44.

    "Just because I disagree with you it does not make my view nonsense, or hysterical"


    I said hysterical and out of proportion. My riposte was aimed at Eurosceptics generally; your post, as usual, caught my eye.

    Please comment on the 'proportion' aspect.

    To say that a little local difficulty involving economies that represent less than 5% of EU GDP 'means the end of the Euro' is hysterical and a rather silly observation. But then it is probably not an observation just a desperate wish.

    After all if you refuse to join a club and that club does fairly well then I guess it can make you bitter.

  • Comment number 45.

    "You should be ashamed of joking about such matters"


    Humour knows no frontiers. Also my comment was meant more as irony.

    As for 'boasting about all things German' - not guilty.

    I merely contrast the progressive policies of the EU states (Germany I know better than most) with the lamentable history of failure in this country over the past 50 years.

    " I just hold the view that the Euro is flawed and will fail"

    You are completely entitled to hold this view (or wish) but please back it up with some rational argument. To preach gloom and doom on the back of problems affecting such a small part of the EU is just silly. Apart from anything else if the Euro were to implode it would be rather bad for the UK.

    As for Altbier - no thanks.

  • Comment number 46.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 47.

    39. At 7:36pm on 12 Apr 2010, democracythreat wrote:
    LondonHarris wrote:
    "I completely fail to see HOW in the immediate future Greece is going to be able to pay - off any of the Interest on the Loan.."


    Hey, who cares...... Short term profit is the only thing that has mattered for many years now, and people who wonder about running governments without perpetual debt are idiots and unfashionable spoilsports.


    There is NO point in holding ANY currencies for Profit, if in turn the Currency itself repeatedly De-values, Short - Term, or otherwise.

    Perpetual Debt within any Financal System, send everything into a Downwards Spiral from where eventually NO ONE can escape.

  • Comment number 48.

    No, you were right when you wrote "hysterical."

    The actual rate for 3-years set by the EU is 5.33% (4.83% + 50 basis points surcharge).

    Greece just did a 7-year deal at 5.9% a week and a half ago. 5 billion euros sold.

    The aftermarket of 7% is distorted and not the rate that Greece has been selling bonds at. The earlier auction was subscribed because people assumed Greece was backed by the EU. The 7% rate is based on the assumption that Greece were cut loose. Is the EU beholden to Greece? That question becomes moot when you realize that uncompetitive countries that do not control their own currency are in no man's land. If the EU doesn't support them then the EU shouldn't exist. Greece surely wouldn't have gotten in this bad a jam if the market had turned against the drachma say, 6 years ago when its debt to GDP rose from the 80% range to 100%.

    Considering the difference in maturity of the two classes of bonds, the 7-years sold by Greece and the EU 3-years, one can tack on 50 basis points to the EU deal and arrive at a yield of 5.83% for 7 year bonds from the EU, which is almost the same as the 5.9% that Greece just did.

    Wolfgang Munchau in the FT argues that this is a net transfer of wealth from Greece to Germany. He's right. Not that there's anything wrong with that since Germany is taking on the risk, but all should be most concerned with Greece's ability to get itself ordered. France and Germany demanding military contracts from Greece, well this doesn't help.

    This morning in the Greek news there is report of a gov't official who was bribed $80 million by a German military contractor to approve a multibillion purchase of German warcraft right on the eve of Greece's entry to the Eurozone. Greek corruption plus bribery yields the mess we have now. The question is, can the heavyweights of Europe--after saving the lightweights--allow the lightweights to order themselves without insisting on these sweet corporate welfare deals?

  • Comment number 49.

    Anyone advocating a Stimulus needs to justify the medium term costs of continuing to operate with a large budget deficit for the term of the parliament.

    It beggars belief that noone has questioned what the impact of expanding the state using borrowed (and not cheap mind you) money will have on the next 5 to 10 years.

    If we double the amount we are spending on debt interest, whch is a reasonable assumption considering the government has announced plans to double the National Debt in 4 years, what impact will this have on available tax revenue for funding real departmental spending?

    As far as I can see, all that Quantitative Easing (printing Money) has done these last 18 months is add £200 billion to our national debt and spiked the housing and stock markets whilst simultaneously boosting bank profits.

    I see no positive change from splurging (i would use a diff word but fear it may get moderated) £200 billion up the wall in the name of fiscal stimulus.

    I mean if you are going to print £200 billion, surely a better use over 18-24 months would have been to basic rate of Income tax, slash NI and slah small business corporation tax to nominal levels for 2 years to stoke the fires of industry and job creation? you would have had a few tens of billions in change to boot!

    Gordon Brown claiming his manifesto is radical? is he smoking some funky junk? Even Labour's actions in tackling the recession were not radical, same old tax and spend. (not that either opposition parties offered anything better).

    This government has no clue about boosting demand, especially not in the private sector! you would think with Sterling 25% devalued, policies to encourage inward investment would have been adopted, but nope, same old expand the state plans of boost to red tape and beauracracy via failed initiatives and hiring more non-jobs into the public sector.

    I wonder how many of the tens of thousands of public sector posts created during the downturn were for frontline staff, how many extra police, nurses and teachers were recruited? I bet it was no more than the normal trend, and that instead we got more outreach workers, more admin staff in the NHS, more consultants on IT projects etc!

  • Comment number 50.

    Dan Allen:

    At what point would you care to mention that Greece largely got itself into the mess it's in?

    Why are you painting them as a victim here? their laissez faire attitude to taxation and profligate public spending attitude got them into thsi mess, nothing else. they rightly deserve to struggle and make real sacrifices to dig themselves out of their own hole.

    If I was a German taxpayer i would be mightily peeved if my taxes had to go up to finance a greek loan scheme, i woudl want some form of quid pro quo in return, by way of reduced taxes in the medium term.

    merkel is walking a dangerous line here, especially with the local election on may 9th coming up.

    This all proves the Maastrict Treaty is toothless, and means sweet FA in the context of EU economic stability.

    I fear what will hapen once Portugal, Spain and even Ireland come knocking on the door.

  • Comment number 51.

    And somewhere along the way Gordon will be blamed for this ? Bankers and businesmen are the same the whole world over,its the people who have to pay for their mistakes.

  • Comment number 52.

    #17 >>didnt the government realise at an earlier stage that they would be in a debt-hole?

    FYI, they actually did know all about their horrible debt position but chose to hide it using the "good graces" of Goldman Sachs !! Then they lied all over the place about how strong their economy still was, in order to borrow more !! Doesn't this sound horribly familiar to you ?? It does to me !!

    >>couldn't anyone from the finance or economic department predict that such would happen?

    Yes, see above

    >>...that it is made abundantly clear that the loan alone cannot get them out of the debt ...

    Interesting terminology !! The "loan" itself *IS* debt. Basically, they'll be substituting one debt for another; the advantage may be that the new debt (i.e. the loan) maybe cheaper than getting one elsewhere !!

  • Comment number 53.

    #49 >>If we double the amount we are spending on debt interest, whch is a reasonable assumption considering the government has announced plans to double the National Debt in 4 years, what impact will this have on available tax revenue for funding real departmental spending?

    We owe our souls and our first-born to the international creditors. Of course, the current government will have departed for pastures new, bearing with them lucrative directorships in various large companies !!

  • Comment number 54.

    53. At 5:09pm on 13 Apr 2010, ishkandar wrote:

    We owe our souls and our first-born to the international creditors. Of course, the current government will have departed for pastures new, bearing with them lucrative directorships in various large companies !!


    Yes indeed, they are ALL Conservatives NOW!!!

  • Comment number 55.

    Nick Clegg comes over as a Labour politician, we need more like him in parliament while we have Conservative Party and New Conservative,sorry Labour Party wanting to push many further along the road to poverty and dispair. P-R is a wonderful thing, it tells you what you might want to hear,not what you need to be told. The un-regulated market economy and the musical chairs attitude of moving jobs around the globe at the drop of a hat has brought this situation upon the UK,but quite nations. Where is the masterplan to prevent total colapse ? We treat the symptoms but do not cure ,this cycle will continue until sensible action is taken,its clear cuts will come I am sure the cancer will rear its head again. CHANGE is needed but not the small change we will end up with.


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