Apr 3
The Bailout Of Greece Second Half Has Started
Thursday, 30 June 2011 06:29

Financial markets heaved a sigh after Greece's Parliament passed a package of savings of $ 40 billion. A second vote on the implementation of the package set up for tomorrow and the ongoing protests in Athens could change the political calculations. But hope is now Greece will receive a $ 5 billion bailout package from the EU-IMF and avoid a default in the short-term.  

That's good news, at least as far as the market in question. European Stock markets rallied overnight as the euro rose sharply against the dollar. Dow recently up 0.6%, on track for a third successive rise-be.  

The bad news is that Greece will be able to pay his debts exceeded next month and the austerity package is likely to paralyze a struggling economy.  

"No country in the history of the modern economy has faced the level of debt similar to Greece by a ratio of debt to GDP over 150% and avoid default," said an analyst at Open Europe, based in London. "Even with the help of the second bailout and debt rollover, Greece is still likely to default within the next few years, due to the poor growth prospects and the increasingly heavy burden of debt which means it must be able to fund itself after 2014."  

Given that it's better for Greece to restructure its debts now, estimates the cost of these measures will only increase over time, the company predicts the pieces taken by lenders Greece will increase from 50% today to 80% by 2014 following the second bailout.  

Unlike Argentina, Russia or other countries of the past, what happened in Greece have ramifications far beyond its borders. Because it is a member of the European Union, Greece could not "just" a debt default and/or devalued its currency and start over.

From the beginning of the crisis 18 months ago, European policy makers aims to put a "fence" around Greece to buy time for Portugal, Ireland, Italy and Spain to save themselves.  

In addition, the banks in Europe will be capable of handling of write down short-term debt Greece. In mid-July, regulators will announce the results of stress tests on new banks in Europe and there have been many speculations will fail and that was before Greece meet the capital requirements under Basel III.

Even if there is political will on the European Union, it is not clear whether there is enough money for the recapitalization of banks in Europe after forcing them to take the hair cut on Greece's debt. The European Central Bank has been in fashion and the tightening of the Us Central Bank under pressure to shrink its balance sheet while it has approved the extension of special loan facilities for foreign central banks, the WSJ said.  

China has promised to continue buying debentures of the European Union and has about $ 3 trillion of foreign currency reserves. But if the surrender of Greece is a difficult political challenge for politicians Germany, imagine trying to convince voters that sells assets to China is a good idea?

In short, the EU and the IMF providing more money to Greece so that it can pay off a loan is indeed "theatricality".