Will Greece bring down the European Union (EU) ?

Super Commando Dhruva

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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.
Go through this list

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

very scary. Greece might be the first but certainly not the last to follow that suit. In all seriousness, i hope and pray that we unwind from clutches of this recession.
 

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This image represents the debt situation of PIIGS (Portugal, Ireland, Italy, Greece and Spain) which have economic troubles.

 

AkhandBharat

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Go through this list

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

very scary. Greece might be the first but certainly not the last to follow that suit. In all seriousness, i hope and pray that we unwind from clutches of this recession.
Greece is just the first in the list of dominos to fall. Just look at all the eurozone member countries. They are in no position to dole out money to help the PIIGS. Its laughable, how these guys make headline news by announcing trillion dollar package to rescue the Euro. Too funny! First, the housing crisis already have made the whole lot of them insolvent. Debt cannot finance debt. Period. Eurozone countries and UK are going to crumble. And if the US doesn't shield itself and start taking measures to reduce external debt, its going down next.
 

AkhandBharat

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"EU a stupid idea and it is going to fall apart" - Charles Dumas

 
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AkhandBharat

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MEP: Euro will collapse, 'Pig States' to bring EU down

 
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AkhandBharat

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When the Global Debt Shuffle Hits US

The Wall Street Journal: When the Global Debt Shuffle Hits Home

It took the Dow Jones Industrial Average 62 long, grinding years to close above 582.69 for the first time. On Thursday, the Dow (NYSE: ^DJI - News) plunged by 582.69 points in less than 420 seconds.

The market's terrifying drop was more than a technical trading glitch. It was a warning that the U.S. economy is playing a dangerous game. After all the massive bailouts, the federal debt is exploding.

Overall U.S. government debt now stands at 92.6% of projected 2010 gross domestic product, according to the International Monetary Fund.

The U.S. now has a heavier debt burden than several of the overleveraged countries that have been branded with the scornful nickname "the PIIGS." Portugal's debt, according to the IMF, is 85.9% of its GDP; Ireland's, 78.8%; Italy, 118.6%; Greece, 124.1%; Spain, 66.9%. Perhaps there should be a new acronym, with the U.S. added to Portugal, Ireland, Italy, Greece and Spain: "PIG IS U.S."

But joining this club is no joke. Economists Carmen Reinhart and Kenneth Rogoff, authors of "This Time Is Different: Eight Centuries of Financial Folly," have shown that a rise in government debt above 90% is associated with a decline in economic growth of roughly one percentage point per year.


Yes, in recent months, there's been a lot of bullish talk about how the American balance sheet has been cleaned up. Total consumer debts, according to the Federal Reserve, have dropped by $160 billion since the third quarter of 2008, while total business debt is down by more than $150 billion. And banks and other financial institutions owe $1.4 trillion less than they did in late 2008.

Those debts haven't disappeared. They have merely been shifted onto the books of the federal government—in what may be the highest-stakes shell game ever. On Sept. 30, 2008, total U.S. public debt stood at $5.8 trillion. By the end of 2009, it had surpassed $7.8 trillion. So far this year, it has swollen by an additional 8%; total U.S. public debt outstanding now exceeds $8.4 trillion.

There's no sign of a slowdown in debt growth. "These processes are not linear," warns Prof. Reinhart. "You can increase debt for a while and nothing happens. Then you hit the wall, and—bang!—what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big." The results can unfold in a cascade of what Prof. Reinhart has called "the deadly Ds": downturns, deficits, more debt, downgrades, even default.


The U.S. has advantages many of the PIIGS lack. Our economy is far more diversified, and the Treasury finances much of its debt domestically, making us less vulnerable to the whims of foreign investors.

But, adds Prof. Reinhart, "we cannot take for granted that these things happen only in places like Greece but can't happen here. If you flood the markets with more and more debt, its value is going to go down. We are silly to fool ourselves into believing otherwise."

And, of course, just as companies with too much debt are more vulnerable to any outside shock, so are countries. In 1989, the great investor Sir John Templeton told me something that has rung in my ears ever since, this week more than ever: "Those who spend too much will eventually be owned by those who are thrifty."

What, then, should you do to protect yourself? Because of the debt buildup, the risks of an economic slowdown and a recurrence of inflation down the road are very real. But in my view, the obvious tools—gold and other commodities, emerging-markets stocks, inflation-protected bonds—are already so popular that they are likely overpriced.

If you are aggressive, you might start looking at European stocks. The MSCI EMU index, which tracks major companies in the "euro zone," has lost an annual average of 19% over the past three years. Major companies like Nestlé, Philips and Unilever are getting cheaper by the day, especially compared with their U.S. peers. There's no rush; you shouldn't imagine you can buy at the exact bottom.

If you just want to fortify your portfolio, wait for an economic slowdown, when the people who have been barging into gold and commodities, emerging markets and inflation-protected bonds will come stampeding back out of them. Then you can buy at lower prices that will afford you some real protection. For most investors, at least for the time being, the best thing to do is wring your hands while sitting on them.
 
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Armand2REP

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PIG budget deficit decline in order of importance...

Italy

Italy expects its public debt to amount to 117.2% of gross domestic product in 2012, down from a peak of 118.7% of GDP in 2011, according to the new official forecasts. The new projections also point to gradually lower budget deficits for the next three years, culminating in a budget deficit of 4.3% of GDP in 2012.

Spain

Spain will cut its budget deficit by a further 15 billion euros ($20.13 billion) by 2011 and has no plans to resort to European Union aid to finance its debt, an Economy Ministry spokesman said on Monday. Prime Minister Jose Luis Rodriguez Zapatero is expected to give more details on the planned cuts -- which would bring the deficit to 9.3 per cent of GDP in 2010 and 6.5 per cent in 2011 -- when he appears before parliament on Wednesday.

Portugal

Portugal's prime minister has promised his European Union counterparts that he will cut the budget deficit further than planned this year, to 7.3 percent of gross domestic product, a government source said on Saturday. The government has previously promised to reduce the budget deficit to 2.8 percent of GDP by 2013 through a pay freeze on civil servants, scrapping some tax exemptions and raising tax rates on the wealthy and on capital gains from stock investments.


Greece


Greece's central government deficit narrowed by 41.8 percent in the first four months of 2010, the finance ministry said on Monday, boding well for the debt-laden country's goal to slash its budget gap this year. The central government shortfall dipped to 6.283 billion euros ($8.43 billion) from 10.791 billion in the same period last year, preliminary figures showed. Debt-laden Greece has pledged to slash its budget deficit by 5.5 percentage points to 8.1 percent of gross domestic product (GDP) this year, adopting tough austerity measures to qualify for a 110 billion euro bailout by euro zone peers and the International Monetary Fund.

"The government seems to be on track to meet its deficit cut targets," said Nikos Magginas, an economist with the National Bank of Greece.

Net revenues rose by 10 percent, partly helped by a value-added tax (VAT) increase announced in March. Net spending before debt payments declined by 8.7 percent, more than the government's 4.4 percent target.

The improvement in finances was also reflected in central bank data released separately on Monday, showing the government's net borrowing requirement at 7.7 billion euros, 28 percent lower than in the same period last year.

Source: Reuters
 

Armand2REP

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This image represents the debt situation of PIIGS (Portugal, Ireland, Italy, Greece and Spain) which have economic troubles.

France owns a trillion dollars of PIIGS debt... at 10% annual return we are raking it in. =xy
 

AkhandBharat

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A Show of Force in Europe, but Worries Linger


FRANKFURT — European leaders orchestrated a huge show of financial force Monday to halt a spreading debt crisis, drawing applause from investors but also questions about whether the nearly $1 trillion rescue package merely postponed a reckoning with the euro area's underlying problems.


Markets rallied around the world in response to the extraordinary show of solidarity in defending the euro, which topped even the U.S. government's support for its collapsing financial system in 2008. A broad index of European blue chips closed up more than 10 percent and Wall Street was up more than 3 percent in afternoon trading.

The risk premium on Greek bonds nearly halved as the European Central Bank said it would buy government bonds directly for the first time ever.


But analysts pointed out that the package did nothing to reduce overall debt — it just spread it onto more shoulders.

There will also be a risk that, by in effect shielding Greece, Portugal, Spain and other over-indebted countries from the harsh verdict of the open market, the measures will make it harder for political leaders to overcome public resistance to the deep budget cuts needed to get spending and borrowing under control.


In what could be a sign of continued jitters, the euro gave up much of its early gains on Monday and interbank lending rates remained elevated. Moody's Investors Service also announced that it might cut Greece's credit rating to junk within the next month, citing the country's "dismal" economic prospects.


"Lending more money to already over-borrowed governments does not solve their problems," Carl Weinberg, chief economist of High Frequency Economics in Valhalla, New York, said in a research note. "Had we any Greek bonds in our portfolio, we would not feel rescued this morning."


Robert Barrie, head of European economics at Credit Suisse, paraphrased Winston Churchill: "It's not the end, I'm not even sure it's the beginning of the end." But, he added, "it takes us away from the threat of a crisis."

Jean-Claude Trichet, president of the E.C.B., said the central bank's governing council decided to prop up the bond market and inject cash into the European banking system because "the channels of normal monetary policy were not functioning." Only four days earlier, Mr. Trichet had insisted that the council had not even discussed bond purchases.

The E.C.B. action Monday also included measures, together with the U.S. Federal Reserve and other major central banks, to provide banks with dollars through the use of currency swaps.

The swaps are intended to make it easier for European companies, institutions and governments to borrow dollars when they need them, "and to prevent the spread of strains to other markets and financial centers," the Fed said in a statement from Washington.

The scale of the E.U. rescue program — €750 billion, or $957 billion — recalled the $700 billion package the U.S. government provided to help its ailing financial institutions in late 2008. That package, known as the Troubled Asset Relief Program, or TARP, also cheered markets at the time, but the uplift proved temporary until much later, after the broader economy, and U.S. banks, began to recover.

The E.U. package, reached after hours of meetings that lasted until early Monday, includes €440 billion in loan guarantees and €60 billion under an existing lending program. Elena Salgado, the Spanish finance minister who announced the deal, also said that the International Monetary Fund was prepared to provide up to €250 billion separately.


One major difference between the European bailout and the TARP plan, however, is that Europe is hoping that the fund will not be activated. After the Lehman collapse, there was always a certainty that the TARP would be deployed as soon as it was approved by the U.S. Congress.


Indeed, for all the excitement about the numbers, it is important to remember that the headline €440 billion number does not now exist. It is a commitment by E.U. governments to borrow such an amount if a large economy like Spain, which represents 12 percent of euro-zone gross domestic product, asks for it — and then have the I.M.F. contribute about half of what Europe lends.

By definition, if it came to such a point, interest rates would climb and the billions of euros that the special purpose vehicle would have to raise from the markets would not only come at a high cost, but would increase the debt levels of the likes of Portugal, France, Italy and Britain, thus compounding the region's heavy debt woes.

In the months ahead, investors are likely to closely scrutinize monthly budget figures from European governments, which previously went almost unnoticed.

"You definitely would want to see these additional austerity measures, especially Spain and Portugal," said Elga Bartsch, an economist at Morgan Stanley in London. "They all seem to be moving and getting more serious in addressing the underlying problem."

On Monday, Mr. Trichet warned European governments, all of whom are likely to miss the budget deficit targets they agreed to when they formed the euro, that they must continue to cut government spending.

"For us what is absolutely decisive is the commitment of governments of the euro area to take all measures needed to meet their fiscal targets this year and in the years ahead," Mr. Trichet said at a press conference in Basel, Switzerland.

He declined to say how much money the bank would spend buying government bonds on open markets, via the euro-zone's national central banks — a process that began Monday.

The E.C.B. also said that it would resume offering unlimited cash for up to six months at the benchmark interest rate of 1 percent for banks that post the necessary collateral.

The Bank of Japan joined in the global response, saying after an emergency board meeting Monday that it would pump ¥2 trillion, or $21.6 billion, into financial markets for a second consecutive trading day.

The overall package was much larger than expected, and represented an audacious step for a bloc that had been criticized for acting tentatively, and without unity, in the face of a mounting crisis.

At the same time, the sheer size of the package will strain the unity of Europe's fractious governments, especially when leaders like Nicolas Sarkozy of France or Angela Merkel of Germany are losing ground politically. Ms. Merkel's Christian Democrats lost power in North Rhine-Westphalia, Germany's most populous state, in elections Sunday.

In effect, Germany and other wealthier European countries are assuming responsibility for the creditworthiness of Greece, Portugal and the other debt delinquents, as if the U.S. government were bailing out California.

But the European central government is weak and must invent new structures to administer the promised aid.

"The debt crisis will change the nature of European monetary union," Jörg Krämer, chief economist at Commerzbank, argued in a note Monday. "The euro zone has moved away from a monetary union and towards a transfer union."

Mr. Krämer warned that the shift "can undermine political support for the euro zone in the long run. After all, it is unlikely that the countries receiving support will let others permanently dictate their economic policies. Moreover, voters in the countries giving support will not be willing to permanently give financial support to other countries."
 
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AkhandBharat

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Take a look at my post above. UK, France and Germany are compounding their problems trying to reinforce the Euro. Bad Move! Really bad move!
 

AkhandBharat

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France and Switzerland most exposed to Greece's debt crisis, say analysts

France and Switzerland most exposed to Greece's debt crisis, say analysts

France and Switzerland have more exposure to Greek debt than any other countries in the world, and more than twice as much as Germany – perhaps adding fuel to the hesitance of the Germans to help bail out the troubled country.

France and Switzerland have $79bn (£50bn) each of exposure to Greece, according to American-sourced data from the Bank for International Settlements analysed by the Swiss bank UBS. Germany's exposure is $43bn.


Germany is thought to be reluctant to commit itself to bailing out Greece even though EU leaders said that they were committed to trying to help shore up the country's finances. Greece needs to raise about €53bn (£47bn) this year, which would take its debts to €290bn, nearly 120% of gross domestic product.

Bank share prices were weak across continental Europe on the back of uncertainty about the solution for Greece. Germany's Deutsche Bank and BNP Paribas of France were both down 1.3%.

Analysts said banks did not usually disclose their exposure to individual countries but dismissed as misplaced concerns that Greek banks might be holding all the €300bn of debt in issuance. "Greek banks own around €40bn of the total "¦ implying most Greek debt is sitting on the balance sheets of non-domestic banks," said Jagdeep Kalsi, an analyst at Credit Suisse.

The French bank Crédit Agricole was singled out by analysts at the research firm CreditSights as being particularly exposed. "It owns Emporiki Bank in Greece, which has been floundering away, and has about €23bn in loans there," Credit Sights analysts said.

While Greece has no immediate problem in funding its debt position, there is a concern that unless a solution is found for its budget deficit, contagion could spread among other indebted countries in the eurozone. CreditSights notes that the next major financing for Greece is due in April or May, when €20bn needs to be refinanced.

If the crisis spreads to the so-called "Pigs" – Portugal, Ireland, Italy, Greece and Spain – the UK is most exposed with $3.7bn of debt, according to the BIS data used by UBS, closely followed by France and Germany. "The collective exposure of the banking systems to the Pigs is $2.9tn. The bulk of that exposure is located in the banks of France, Germany and the UK," the UBS analysts said. "The exposure is particularly concentrated in the French and German banks, which have 24% and 21% of their foreign total claims harboured in these countries. This is one reason why France and German are so quickly mentioned as countries likely to support or participate in a bailout."


One concern for the banks holding Greek debt is that it will be downgraded by the credit rating agencies. Kalsi said that banks holding large amounts of Greek debt could be affected if the country's rating is downgraded below BBB-, two notches below where it is now, as this would mean the bonds could no longer be used as collateral at the European Central Bank.

The ECB had relaxed the criteria for bonds that it would accept during the credit crisis but will go back to being more stringent about bond ratings by the end of 2010. Gary Jenkins, head of fixed-income research at the stockbroker Evo Securities, thinks the ECB might be encouraged to delay reverting to its previous requirements for bonds while the uncertainty over Greece continues, even though the ECB president, Jean-Claude Trichet, said last month that the bank would not change its collateral framework for any country. "No government, no state, can expect special treatment," Trichet said.

French bankers were trying to allay fears of the impact of a default by Greece on the French banking system earlier today. "It's not a particular issue at all for the French banks," Baudouin Prot, chief executive of BNP Paribas, said.
 

Armand2REP

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Take a look at my post above. UK, France and Germany are compounding their problems trying to reinforce the Euro. Bad Move! Really bad move!
Check out my post above, PIGS are well on the way to getting out of their high deficits.
 

AkhandBharat

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I did take a look a your post. The pledge to reduce deficits is laughable.
 

AkhandBharat

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So that is why people are rioting? For fake reductions? It is quite real.
People are not rioting because their governments are pledging to reduce their debt. They are rioting because unemployment in PIIGS is at an all time high, and at the same time rich EU countries (for now, since they wont be rich anymore!) are trying to force these nations to undercut spending, thus handicapping them to use the bailout money to provide economic stimulus to provide jobs. Its a vicious circle!
 
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Armand2REP

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People are not rioting because their governments are pledging to reduce their debt. They are rioting because unemployment in PIIGS is at an all time high, and at the same time rich EU countries are trying to force these nations to undercut spending, thus handicapping them to use the bailout money to provide economic stimulus to provide jobs. Its a vicious circle!
They are rioting because of public sector pay cuts and retirement age extension. Government is taking their shyte and the communists don't like it.
 

AkhandBharat

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Like I said, its a vicious circle. The govt can't magically create employment with the bailout money if it can't give it back to the people in terms of a stimulus injection. And UK, France and Germany are praying that the trillion dollar bailout doesn't get used so they don't get dragged down into it. UK, France and Germany are doomed if they lend, doomed if they don't. Europe is crumbling, EURO will die soon, and EU as a power will collapse.
 

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