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.
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
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.
As the eurozone fiscal debt problems are yet to be solved, more negative news have appeared during the past two weeks. Greece is still struggle to receive bailouts. The May PMI for eurozone dropped sharply from previous 58 to 54.6, indicating a rather slow growth in that area.
Italy
The Italian new ECB president-to-be Mario Draghi warned his home country in the end of last month saying that Italy should return to growth. The speech was given 10 days after S&P put Italian credit on a negative watch.
Spain
Cajas or saving banks in Spain are continuing facing pressures. Protesting crowds conflicted with the police force in Barcelona last month that resulted in more than 100 injured. Then it was reported last week that the Spanish government may offer asset protection schemes that are similar to Maiden Lane to cajas, in order to keep them survive.
Portugal
The socialist has just lost the election to the opposition centre-right Social Democrats, which expresses the willingness to form a coalition government with the conservative CDS-PP party. And the country is still on the radar to watch out for any changes to the already deteriorated fiscal deficit.
Ireland
Ireland leaders came on the news last week saying that the country has enough cash to keep running until at least 2013. Many question the credibility since they had similar comments last year right before they sought for bailout.
Putting all together, it looks like the economic situation in eurozone is stable, although not showing much growth. And in the case that Greece defaults on its debt, things might change unexpectedly. As discussed in this article, “Greece default could make others junk”
“A Greek default would be highly destabilizing and would have implications for the creditworthiness of issuers across Europe,”
“This would result in more highly polarized credit worthiness and ratings among euro zone sovereigns, with the stronger countries retaining very high ratings and the weaker countries struggling to remain in investment grade,”
Our previous scenario analysis on Greece fiscal problems still stands.
Today cabinet ministers in Greece approved new austerity measures to attempt to rescue the troubled economy. Details include:
For more details on the economic and political crisis in Greece, read the following articles:
For your business and economic needs, contact the Winflow Financial Group at 1.800.956.6897.
Worries about Greece has recently escalated, in both Greece itself and other eurozone countries such as Germany. First on last Friday, the opposition New Democracy Party rejected the proposed tax increase by the Prime Minister George Papandreou as part of the austerity measures.
Fearing of government default that may cause bank freezing, Greece citizens started to withdraw cash from their domestic bank accounts. It was estimated some €1.5B was taken from banks in cash on last Thursday and Friday alone. Most of the withdrawals are small amounts from €2,000 to €15,000.
As discussed in the eurozone fiscal problem situations, Greece is receiving the bailout from ECB and IMF in tranches and the next trench is conditioned on meeting the fiscal targets in June. A report by German news magazine Der Spiegel, which was soon denied by Greek officials, stated that “Greece miss all agreed fiscal targets, the so-called Troika in its report , the next week to be presented, solid. The deficit in the state budget falls from higher than expected.”(google translated from German). And the PM George Papaconstantinou said:
“Negotiations continue and will be completed in the next few days. We have every reason to believe the report will be positive for the country,”
If tax increase is not approved, and Greece were to meet Fiscal Targets, selling state-owned properties seemed to be the only quick fix. However, employees in the state companies to be privatized are showing their anger by going on strike and protest on the streets.
While it is too early to conclude that Greece will default on their debt immediately after bailout is halted, it will bring about another round of unrest both on the street and the market if Greece is deemed to be missing the fiscal targets for bailouts.
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