Will Greece bring down the European Union (EU) ?

Discussion in 'Europe and Russia' started by nrj, May 9, 2010.

  1. nrj

    nrj Stars and Ambassadors Stars and Ambassadors

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    While Greek citizens struggle to accept the reforms needed to rectify the country's long-standing structural and fiscal problems, questions persist as to what will be cut in exchange for a three-year EUR110 billion ($145 billion) bailout package from the European Union and the International Monetary Fund. While it is known that retirement ages will be raised, the pension system reformed, and the public sector reduced, it is not known exactly how the expected wide-ranging government budget cuts will affect Greek defense.


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    Greece's problem will come primarily in its defense equipment budget


    Despite the country's tip into recession and the government's knowledge of the rapidly approaching twin debt/deficit crisis, the Greek defense budget actually rose nominally by 6.9 percent in 2009 from EUR5.81 billion to EUR6.24 billion ($8.67 billion). Such a reoccurrence is unlikely in the future, as the Greek budget deficit - over 13 percent of GDP in 2009 - must be shrunk down to the 3 percent ceiling mandated by the EU under its Stability & Growth Pact eurozone rules by 2014. That date was set by the EU and IMF as part of its bailout agreement.

    Already the 2010 defense budget has been reduced, albeit slightly, down to EUR6 billion ($7.85 billion), or roughly 2.8 percent of GDP. The latter figure represents the highest annual allocation in real terms among all of Europe's NATO member states. By comparison, the two highest nominal defense spenders in Europe - the U.K. and France - allocate 2.3 and 2 percent, respectively, toward their militaries on an annual basis. Like Greece, these countries face serious budget deficit and national debt crises on the horizon and will be forced by fiscal reality to curtail future defense budget growth.

    “As part of the sharp austerity measures confronting Greece, the armed forces will have to accept the bad-tasting medicine the rest of the country is being forced to swallow in order to spare the nation from bankruptcy,” said FI's European Defense Analyst Dan Darling. “How severe the budgetary shrinkage will be remains to be seen, but with the Greek economy expected to contract by up to 4 percent this year and again in 2011, the reality is that meeting the current investment level of 2.8 percent of GDP is a near impossibility.”

    At the same time, Greece's traditional unease with neighboring Turkey ensures that defense spending will not suffer the deep chop of Athens' budgetary axe. Turkey has emerged over the last decade as a growing regional power and despite a rapprochement between the two countries, lingering issues remain involving territorial disagreements and questions about the diplomatic status of Turkish-controlled northern Cyprus. Though Turkish officials have insisted that Greece continues to perpetuate an irrational fear of a Turkish threat, Hellenic distrust of its Anatolian neighbors runs deep. While trade has increased over the years and cross-political and military visits have occurred, territorial incursions by the Turks in the Aegean continue.

    Though alleviating tensions with Turkey will help ease the Greek defense budgetary crunch, it will not eliminate it altogether. Despite their shared NATO membership, Greece will continue to view Turkey as its principal strategic threat, and unless Ankara reciprocates with hard evidence of a military climb-down (reducing its air and sea presence from disputed territory, removing forces from northern Cyprus, shrinking its defense budget), Athens will no doubt feel it necessary to maintain a worthy state of military preparedness.

    The problem for Greece will come primarily in its defense equipment budget. Under its two medium-term defense armament programs (referred to as the EMPAE) approved in July 2006, the Greek defense establishment planned to invest a total EUR26.8 billion ($39.4 billion) toward equipment procurement and maintenance. However, the bulk of the first-term (2006-2010) program money (EUR11.4 billion, $16.7 billion) was used to pay off debt for equipment procured under a previous EMPAE. The second program, covering the period from 2011-2015, planned on a EUR15.4 billion ($22.7 billion) budget. Instead, what remains for the second-term budget will likely be used much like its predecessor - to pay off debts accrued under the preceding EMPAE.

    IMF chief Dominique Strauss-Kahn insisted on May 2 that traditional levels of Greek defense investment will be "clearly reduced" under the austerity measures implemented by the government as part of the agreed-upon bailout. But with lingering modernization programs (namely for multipurpose frigates, advanced trainers, and new-generation fighters) and unfortunate geography requiring heavy air and sea surveillance, the Greek defense budget can only be slashed so much. Expecting it to fall by much more than 10 percent over the coming three years might prove untenable. A 20 percent reduction would bring annual allocations through 2013 down below EUR5 billion.

    “The benefits of such budgetary thriftiness would be felt more in Ankara than in Athens, as this would allow Turkey to continue increasing its geopolitical influence eastward and southward into its former Ottoman domain,” said Darling.

    Source
     
    Last edited: May 9, 2010
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  3. Yusuf

    Yusuf GUARDIAN Administrator

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    Will the Greece bring down EU?

    Just this morning I read in the newspaper that Germanys ruling party has suffered a defeat in polls as the voters are angry over the Greek bailout package that.

    My question is, will such individual national opinion from members of EU bring about a collapse of the EU or at least shrink to just the power horses in the EU.

    British decision not to join the Euro was a good move. If more such greece come up, it will drag the Euro down and along with it the strength of the EU itself.

    Will we see the Franc and Mark come back in the future or does the EU have the resilience to bounce back and stay united?
     
  4. Zaki

    Zaki Regular Member

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    don't worry Greece crisis are temporary now


    EU ministers offer 500bn-euro plan to support currency


    EU finance ministers have agreed on emergency measures worth 500bn euros (£430bn) to prevent the Greek debt crisis from affecting other countries.

    The 16 members of the single currency bloc will have access to 440bn euros of loan guarantees and 60bn euros of emergency European Commission funding.

    The International Monetary Fund (IMF) will also contribute up to 250bn euros.

    Economic Affairs Commissioner Olli Rehn said the agreement proved "we shall defend the euro whatever it takes".

    There had been fears that without the measures, the euro might have come under pressure on markets as investors grew concerned about financially-troubled states such as Portugal and Spain.

    The euro has strengthened in early trading in the Far East, surging above $1.29.

    On Friday, eurozone leaders approved an 110bn-euro loan package to Greece, which will be backed by the EU and IMF.

    "The IMF will play its part, in the interests of the international community, in addressing the current challenges," said IMF chief Dominique Strauss-Kahn in a statement early on Monday.

    Marathon talks

    Speaking early on Monday after 11 hours of talks, Spanish Finance Minister Elena Salgado announced that an agreement had been reached on a package to defend the euro and eurozone economies.

    You can read the full article from this link: http://news.bbc.co.uk/1/hi/world/europe/8671632.stm
     
  5. mattster

    mattster Respected Member Senior Member

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    The only reason that Greece got bailed out was because of the Euro currency. Basically in a nutshell - Greece, Spain, Portugal are not the kind of industrial hi-tech high production powers that the North European countries are. By joining the EU, these countries were basically living beyond their means with a strong currency that was basically suported by Germany, France, UK and Italy.

    If they did not bail Greece out, then the Euro would be hammered and it would affect all of Europe and cause significant social damage.
     
  6. Yusuf

    Yusuf GUARDIAN Administrator

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    Precisely my point. Do we see the big powers continue to support bottom rung countries? Germans have shown they don't appreciate it as shown by the elections. UK did the wise thing by not dumping its pound and go for the euro. So will counties like Germany and France go through the trouble over and over again because of lower rung counties?
     
  7. Iamanidiot

    Iamanidiot Elite Member Elite Member

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    pains of integration Yusuf India faced it
     
  8. Yusuf

    Yusuf GUARDIAN Administrator

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    The British did one favor for us. It helped us unite into one country. We had a nation wide system in place. The currency was in place too. There were no separate economic entities.

    The situation is different in europe where several nation states of vast economic disparity have joined to form a single economic entity.
     
  9. Iamanidiot

    Iamanidiot Elite Member Elite Member

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    Yusuf the point is they will eventually succeed they don't have toxic religion added into the mix
     
  10. Yusuf

    Yusuf GUARDIAN Administrator

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    They might well succeed. But will the population of the major countries allow their government to support the minor countries? That is the key. I say again, the germans have rejected the bailout their govt has handed out to greece.
     
  11. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Here is the trick to saving PIGS of the Eurozone.

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    All these countries have very high tax evasion. The tax systems are broken. It isn't that they do not have the funds, they just do not know how to collect it. EU advisers are assisting countries, especially Greece on combating this problem as well as overseeing cuts to bloated public sectors. Greece is losing €30 billion a year to tax evasion. That would go a long way to plugging their budget deficit.
     
  12. Yusuf

    Yusuf GUARDIAN Administrator

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    one trillion dollars has been sanctioned as the bailout..that is a lot of money. How will Greece pay back all that? one tril is three times its economy.
     
  13. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    The trillion euro is not spent, it is a guarantee for all PIGS in the future. It secures the currency against all debt fears.
     
  14. Oracle

    Oracle New Member

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    $ 1 trillion is for emergency use. For Greece it is $60 Billion I guess.
     
  15. Daredevil

    Daredevil On Vacation! Administrator

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    Greece may not bring down EU as a whole but it definitely make a dent in the value of Euro and can cause deflation across the Europe and world as well. If Greece is not bailed out, the value of EURO will take a beating and will no longer serve as a better alternative reserve currency and this will make imports into EU costly, decreased consumption of goods, less spending and finally deflation which will lead to depression and this might trigger a chain reaction and serve as a contagion affecting whole world economy.

    Its important to bail out Greece and other EU countries which are on the edge but EU must make sure that these bailed out countries will take stringent measures to bring back debt-to-GDP ratios and fiscal deficits in control and finally cutting off of bloated pension plans, welfare programs etc.. otherwise there is no point of bailout and better to reset these economies by letting them to default and take economic pain for a few years.
     
    DaRk WaVe and Oracle like this.
  16. DaRk WaVe

    DaRk WaVe Regular Member

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    Fed Restarts Currency Swaps as EU Debt Crisis Flares

    May 10 (Bloomberg) -- The U.S. Federal Reserve will restart its emergency currency-swap tool by providing as many dollars as needed to European central banks to keep the continent’s sovereign-debt crisis from spreading.

    The swaps with the European Central Bank, Bank of England and Swiss central bank will allow them to provide the “full allotment” of U.S. dollars as needed, the Fed said late yesterday in a statement in Washington. A separate swap line with the Bank of Canada will support as much as $30 billion, the Fed said, and the Bank of Japan said it approved reactivating its U.S. line. The swaps were authorized through January 2011.

    The Fed action was a complement to European policy makers’ announcement of an unprecedented loan package worth almost $1 trillion to stop a crisis that threatened to shatter confidence in the euro. The U.S. central bank on Feb. 1 had closed all swap lines opened during the last crisis, triggered by the subprime- mortgage meltdown in 2007.

    “If there is one thing the Fed doesn’t like, it is systemic risk,” said Torsten Slok, an economist at Deutsche Bank AG in New York. “Early signs of systemic risk were brewing in the financial system last week, and if policy makers had not taken action this weekend, then this would also have been a threat to the U.S. financial system.”

    Stocks surged around the world today after yesterday’s actions, with the Standard & Poor’s 500 Index rising 4.3 percent to 1,158.56 at 9:52 a.m. in New York. The euro strengthened against the dollar, gaining 1.2 percent to $1.2913. The euro traded at $1.5134 in November.

    Stress Sign

    In a swap, central banks exchange foreign currency with an agreement to reverse the transaction at a later date. The central banks will then lend the dollars at fixed rates to firms in their countries. Dollar liquidity tightened in London last week amid concern financial institutions are holding too many assets of Europe’s most-indebted nations.

    The action signals that Fed officials are concerned about implications of the Greek crisis for American markets.

    “These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers,” the Fed statement said.

    The London interbank offered rate, or Libor, for three- month loans climbed 5.5 basis points to 0.428 percent on May 7, the highest level since Aug. 17, according to data from the British Bankers’ Association. It was the biggest increase since Jan. 16, 2009, and the 13th straight gain.

    Balance Sheet

    Fed officials aren’t sure what the immediate demand will be for dollars or how much the U.S. central bank’s balance sheet will grow from its current level of $2.33 trillion. The ECB said its first offering will take place tomorrow. The prior incarnation of the swaps peaked at $583.1 billion in December 2008, with deals encompassing 14 other central banks.

    “We have a banking system that is fragile, and those banks are exposed to European banks,” said David Kotok, chairman and chief investment officer at Cumberland Advisors Inc., which manages about $1.4 billion in Vineland, New Jersey. Further volatility in Europe would “impact us as well,” he said.

    Rising costs in the market for dollar loans between banks began to show “distrust” in the financial system, Kotok said. “As soon as you see that, you know you have systemic risk.”

    This time, the Fed’s swaps come amid increasing political scrutiny. Congress could ask why the U.S. central bank is expanding the supply of dollars to help smooth disruptions caused by fiscal imbalances in Europe.

    Lending Probe Sought

    Senator Bernard Sanders, a Vermont independent, wants the Government Accountability Office to look into Fed lending facilities during the crisis, including swap lines with foreign central banks, such as the $20 billion facility the Fed opened with the ECB in December 2007.

    A vote on the Sanders amendment could come as soon as May 11 as Congress proceeds with the most sweeping overhaul of financial regulations since the Great Depression.

    “Many members of Congress are deeply suspicious of the Fed’s interventionist instincts,” said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. “Bailing out Wall Street caused enough resentment; appearing to bail out Greece would be even more problematic.”

    “The Fed cannot afford to rile up its congressional critics while the financial reform bill is still in play,” Crandall said before tonight’s announcement.

    Echoes of 2008

    The weekend’s events had echoes of the financial crisis in 2008. Fed policy makers acted after getting formal requests from the other central banks late on May 8, a Saturday, following informal requests toward the end of last week. The FOMC convened a meeting around midday yesterday and delegated authority, with conditions, for Chairman Ben S. Bernanke to approve the swaps. The vote of Fed policy makers was unanimous.

    Fed officials considered possible political consequences of their decision at their weekend meeting. Bernanke told his colleagues that the Fed had to do what is right for the U.S. economy, while providing more transparency to Congress. The Fed is likely to publish weekly information about the draw-downs on the swap facilities and information about the contracts with the other central banks.

    Officials at the Fed saw multiple risks to the U.S. expansion from continued turmoil in Europe, such as crimped trade, declining confidence, and financial volatility.

    The Fed’s move may pale next to the agreement by the 16 euro nations to offer financial assistance worth as much as 750 billion euros ($971 billion) to countries under attack from speculators. The ECB said it will counter “severe tensions” in “certain” markets by purchasing government and private debt.

    “The Fed action is a fringe development here,” said Axel Merk, president and chief investment officer of Merk Investments LLC in Palo Alto, California. The more important development is that “Europe is getting its act together,” he said.
     
    Last edited: May 10, 2010
  17. DaRk WaVe

    DaRk WaVe Regular Member

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    Crisis Deferred, Uh, Averted

    This is almost getting too easy. Just last week the world appeared to be at the brink of its second financial meltdown in 20 months. The debt crisis in Greece was going to spread to Spain and Portugal, then sail up to Ireland and the U.K. and eventually bring down the world. But the finance ministers of the European Union put together a trillion dollar European version of our American TARP and suddenly everything was okay. The Euro and European stock markets had their best day in more than a year-Spain, up 13%, had its best day on record - and the U.S. stock market leapt at the open . If this were ancient Greece, Phidippides, the Greek runner who delivered the news of victory in the battle of Marathon, would be halfway back to Athens by now.

    But if the American version of economic bailout is any indication, a declaration of victory might just be premature, or at least short-sighted. The euro and the European Union are now in roughly the same place as the U.S. now - we have bought off financial crisis by throwing trillions of borrowed dollars at it. But in the U.S., financial peace has come at a price to our long-term economic prospects.

    Here’s what we’ve learned in the U.S. about the cost of financial rescue missions:

    We were in a fiscal hole before the bailout. We are now in a fiscal mine shaft. The Keynesian bargain in our recovery strategy was this: Government spending would cover the hole in private spending, rebuild confidence, and hold open the door to economic recovery. Private enterprise would then walk through the door and growth in the private economy would allow us to pay off even a vastly increased government debt without too much pain.

    The problem is, there can only be so much deficit spending before things start to come undone. (See Greece, riots in the streets of.) The idea that massive deficits will necessarily lead to hyperinflation is not borne out by history, but that doesn’t mean that **** Cheney’s alarming conclusion - “Reagan proved that deficits don’t matter” - is true. Economic historians Kenneth Rogoff and Carmen Reinhart have documented that runaway government borrowing in developed economies does indeed become a drag on output once it exceeds 90% of GDP (for comparison, the ratio of public-debt-to GDP in 2009 was 119% in Greece, 21% in China, and 84% in the U.S.). Projections of President Obama’s budget by Alan Auerbach of the University of California, Berkeley and William Gale of the Brookings Institution would put the national debt over the 90% tipping point by 2020. Unless the deficit is brought under control, say Auerbach and Gale, the upshot will be reduced national income and a falling standard of living. That is as true for Europe as it is for the U.S.

    The question for all developed countries is whether they can pull together the political will to control their soaring budget deficits once recovery has taken hold. The only thing certain about a trillion-dollar bailout package is that it deepens the hole that economies will have to dig out of.

    The Euro package has quieted the markets and apparently quieted the streets in Greece as well. But if the unprecedented gamble on Keynesian economics doesn’t pan out, turmoil in the financial markets will be back. So will the rioters.
     
  18. DaRk WaVe

    DaRk WaVe Regular Member

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  19. Phenom

    Phenom Regular Member

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    Markets around the world seems to like this deal,
    Sensex also witnessed a big surge, global crisis is averted for now.
     
  20. nandu

    nandu Senior Member Senior Member

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    India immune to debt crisis in Greece: Finance Secretary

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    Finance Secretary, Mr. Ashok Chawla being welcomed by Mr. R. N. Dhoor, Vice President, ASSOCHAM at a conference in New Delhi on Monday.

    Finance Secretary Ashok Chawla said that India is immune to the debt crisis in Greece, and it may actually help the country bag the ‘safer haven for global capital’ tag.

    “As far as India is concerned, the impact on us will be minimal. In fact, in the short run - that is, purely in the short run - it might help us in terms of India being regarded as a relatively safer haven,” Mr. Chawla told reporters on the sidelines of a Assocham function here.

    Mr. Chawla said that though the Greece crisis could cause some hiccups in the Eurozone, it would not have a major impact on the international financial community.

    The European Union and the International Monetary Fund (IMF) had, on Monday, agreed on a euro 750-billion bailout package for troubled Eurozone countries.

    “I think we are immune. We were immune when there was a much larger international financial crisis. The Greece crisis is much smaller in scale and magnitude to what the world has seen in the last one-and-a-half years,” he said.

    On the issue of hiking the FII limit in the domestic debt market, Chawla said, “We are looking at that. But that is not just dependent on this issue, it is dependent on a number of factors.”

    Speaking on inflation, which touched 9.90 per cent in March, he admitted that price rise has been spreading to non-food items for some time now. However, he maintained that the government is aware of the situation, and has taken a number of administrative and policy steps to rein in the problem.

    Though he acknowledged that the money expected to come through the 3G auction looks “very very impressive”, he said that this would not have any impact on the government’s borrowing plans at this point of time.

    On day 23 of the 3G auction, the government’s revenue crossed the Rs 45,000-crore mark, even as the pan-India bid for radio waves rose to Rs 11,327 crore.

    http://beta.thehindu.com/business/article426254.ece?homepage=true
     
  21. AirforcePilot

    AirforcePilot Defence Professionals Defence Professionals

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    With a total population of around 11 million and loans of around 40 billion the estimated 3 million workers would each have to absorb debt of more than 13,000 Euros (before interest) plus take on "austerity" measures in a shrinking economy to make good on a repayment plan which would do little more than satisfy short term debt. With average wages of around 24000 Euros individual worker debt load is going to be quite difficult- unless they quit taxing wages which is even more unlikely.

    If the Greek economy survives it will be the first economy in all of history to recover from a debt load of more than 90% of GDP considered a fatal tipping point by economic researchers. Greek debt is now at 115% of GDP.
     

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