On Oct 21, Greece received 8b payment from the troika, the sixth installment of 110b bailout negotiated in May 2010. In a previous article on when Greece will likely to default, we believed that a Greek default is beneficial to Greece. Default on their current debt will help Greek government with their cash flow and improve their finances faster. They would not be able to borrow after default, but the easement on the current debt would allow them to better live within their cash flow.
The European Financial Stability Facility (EFSF) : The creation of an emergency special purpose vehicle (SPV)- On May 9th 2010 the 16 countries( Estonia joined on Jan 1 2011) that share the euro entered an agreement to form a new entity. It was incorporated in Luxembourg under Luxembourgish law on June 7th 2010. Read the rest of this article
The Greek financial minister just came out and announced the continuing receipt of aid from the IMF and ECB. And the European Financial Stability Facility (EFSF) seems to be well set up to deal with further problems. So what exactly is the EFSF? How will it help solve the current European crisis? Read the rest of this article
Speeches from G20 leaders overnight were positive but not definitive. There were also talks about the ECB Oct 6 meeting and possible loosening of official monetary stands. It would seem that markets are very worried about an European recession and is priced in to the stocks. There is also uncertainty as to the solution to correct the insolvent sovereign debt issues, Read the rest of this article
Interest rates were raised by the European Central Bank today for the second time this year. The action signifies an attempt to tackle inflation, despite many countries dealing with the euro crisis debt. One country that may benefit is Portugal, who had their debt downgrades this week.
Recent data coming from the euro zone has been largely disappointing, despite unoptimistic expectations. The most recent industrial orders rose less than predicted, with growth in dominant service sectors also slowing. The ECB will be expected to make one more rise before the end of the year to 1.75%.
This news will put pressure on an already fragile market. The financial markets were rattled by the news that Portugal’s debt would be downgraded, and has cast doubts on the attempts to rescue euro zone states. Many believe that while Greece may be out of trouble, the ECB has also shown a weakness. In agreeing to the second bail out, the ECB ultimately refuses to restructure Greek bonds. This action will stop Greek banks gaining the funds they need and further crippling their economy.
With the inability to work without funding, the Greek banks will always rely on someone else to help. It won’t be until they can work on their own that the euro crisis will be officially over. With the funding they will just build deeper debt and continue the struggle.
New doubts have been cast over the Eurozone as Portugal’s credit rating has been downgraded. This shocked the financial markets and both the euro, and European shares fell, ending the seven day rally.
The pessimistic rating comes soon after a new center-right Lisbon government was setting the austerity plans. These went beyond the demands by international traders and questioned the EU strategy on dealing with the EU debt crisis.
The problem is that with so many issues circulating the crisis in Europe, no one really knows where to look. Greece is trying to handle their catastrophic problems, but while this happens Portugal is also finding themselves with increasing debt. Many people may blame the EU strategy, but with so many problems to deal with, does any strategy really stand a chance?
This is without the inclusion of Ireland. One of the many countries that received a bailout in the crisis who will be announcing spending cuts next year. This measure has to be taken in order to meet deficit reduction targets. The chances are that Ireland may need a second bailout if it fails to grow quickly enough to meet the debt repayment schedule.
The Greek parliament has approved a five year austerity plan with 138 voting against, and 155 in favor of the drastic package. The votes suggest that Prime Minister George Papandreou is due to win further backing on Thursday for a second law.
The International Monetary Fund and the European Union has insisted that Greece pass both the austerity plan on Wednesday, and Thursday’s legislation. Failing to do so would see the country failing to receive the essential 28bn bailout. Without this the country would run out of money in weeks and the Euro crisis would continue to develop.
The country is heavily in debt, and the proposed tax hikes have been widely unpopular with the public. In addition to a nationwide strike, there have also been public riots demonstrating against the government plans.
Many officials have stated that the deal with Greece is unfair, but ultimately it is needed to stop issues spiraling out of control. If a second bailout is agreed on Thursday, Greece will be given additional help to pay off debts until 2014.
Opposition leaders have signaled their frustration at the rising taxes. The leader of the New Democracy Party has said that the austerity package is flawed and the country would fare better with loweing tax rates.
Rebounding commodity prices have helped the Toronto stock market open higher today, though investors continue to keep a close eye on the Greek parliamentary vote. The vote will aim to help the country avoid a default on debts.
The Canadian dollar rose 0.13 cents to 101.48 cents against the US dollar as many traders began to gain confidence with the situation in Europe. Many investors hope that the Greek Prime Minister will be able to muster up the votes to receive a euro28 billion austerity bill through Parliament.
Despite the confidence from investors, Greek unions began striking as an attempt to pressure lawmakers against the package. If the unions get their way, and the package fails, Greece will ultimately face default on its debts. Despite the French helping with finances.
While this could end badly for many on the market, commodity traders were far more optimistic. Copper rose to $4.08 per pound and Oil for August gained back some of last week’s losses, rising on the New York Mercantile Exchange 45 cents to $91.06.
In corporate news, reports have hinted that the federal government will announce the sale of Atomic Energy of Canada Ltd. This will be sold to SNC-Lavalin Group, a Montreal engineering firm.
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