Tuesday, February 16, 2010

Will Greece Cause The EU To Fall (Fail)?

Let’s recap. The easy target: Greece.
“If risks to Greece's deficit targets materialize, then Greece will announce additional steps by mid-March," said European Monetary Affairs Commissioner Olli Rehn yesterday.
Translation: The EU is giving the Spartans 30 days to get their act together. If the appropriate steps aren’t in place by mid-March, the EU will step in and do it for them.
The lack of a specific plan is putting Greek bonds in the hurt locker. The yield on Greek 10-year notes has risen 21 points since yesterday, to 6.45%, their highest yield in three weeks.
Greece is putting the kibosh on corporate debt plans, too: Global companies canceled the most debt sales over the last month since the credit crisis began in 2007. According to Bloomberg data, 16 major corporate bond sales were canceled.
“The Greek government will default soon,” our bond vigilante Dan Amoss forecasts, putting the whole mess into perspective “unless we see a combination of sharp cuts in spending and a bailout from wealthier neighbors.
“But who wants to bail out a very distant neighbor from the consequences of his foolish behavior? European politicians are debating how to sell the idea of a bailout to their taxpaying, voting populations. This is an attempt to contain the damage from the last decade’s overspending of the Greek government.
“The stronger economies of Europe -- the ones not driven by government spending and tourism -- are in a pickle. If they let Greece default on its debt, the consequences for financial markets could be sharp and very painful. If they extend a lifeline to the Greek government, every other irresponsible government will line up for a bailout. At that point, everything may appear to be under control, but a few years down the road after a round of bailouts, the problem will emerge once again. They will remain in place until the size of welfare states and banking systems fall in line with the productive capacities of the economies that support them.”

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