Single European Currency, But What Future Awaits You?

By Author: Italo Zanotti
Total Articles: 62
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The shock wave of the Greek crisis, which is touching only the weakest European Monetary Union countries, but financial markets worldwide, is designed to overcome resistance and to unlock the German plan of 45 billion euros EU aid and the International Monetary Fund. The activation of this plan will gain some 'time, but not change the conclusion of this Greek tragedy or to resolve the crisis that began to lick Spain and Portugal. But we pro-order. Yesterday, the Greek government bonds were downgraded to junk bond level (the first time for a country of Euroland) and earnings are further increased. This means that the government in Athens has closed access to capital markets. Athens is no longer able to raise capital to finance their daily activities or to refinance the debt of 9 billion, which expires next May 19. In other words, the State greek is insolvent and can postpone their declaration of insolvency if they will reach the promised funds from other European countries and the International Monetary Fund. It is likely that the pressures of other countries in the eurozone and the volatility of financial markets and bend the ...
... German resistance to the extraordinary European summit convened by the Spanish Presidency on May 10 is activated Plan aid. This will gain a few weeks, but will not change the terms of the crisis now affecting even Portugal and Spain. These 45 billion euros to Greece only enough for immediate needs and will be exhausted in a few weeks. As he began to officially recognize even the International Monetary Fund for Greece ferry out of the crisis much needed funds for other dimension, since the expected sharp contraction in the economy of Mediterranean countries and aimed at drastically reducing tax revenue and make unrealistic predictions reduction of public deficits.
For Athens becomes a mission impossible to refinance about 200 billion euros of bonds maturing over the next two years. In other words, Athens or receive further aid from the European Union and the IMF or the question of insolvency State greek is postponed for a few weeks.
The credibility of the plan is undermined by a lack of will to restructure debt greek, for example with a significant curtailment of the face value of government bonds. This road is closed for the time-sa. First, the opposition of European banks that see significant losses of 272 billion euros (according to data from the BIS in Basel) exposure to the Hellenic Republic. Suffice to say that French banks are exposed for 80 billion euros and German for 45 billion. Secondly, the opposition to the European Central Bank, that would have to deal with a banking crisis greek, with new difficulties of European banks with significant direct losses, as the Greek government bonds are used by banks European funding as collateral for the ECB. Thirdly, and is certainly the most significant obstacle to the strenuous opposition of the weaker countries in Euroland. A debt restructuring greek, which amounts to a de facto declaration of insolvency, it would rise even more interest rates that governments of Portugal, Spain, Ireland and Italy have to pay to finance: the markets would think that the restructuring of debt is an obligatory path for these countries.
The tragedy is that Greek tragedy has lasted so long that it has already begun to undermine the credibility of the other pigs. In fact, the Portuguese securities were downgraded and earnings have risen strongly so as to make it difficult (or at least very expensive) the refinancing of EUR 25 billion that expire this year. The same goes for Spain, not only grappling with a deficit of more than 10% of GDP, but also with the economic consequences on the balance sheets of banks and the outbreak of the Iberian housing bubble. And just yesterday the rating agencies also downgraded the debt of Spain. Yet bond yields of Italian public debt began to feel the effects of the crisis in Greece. These countries are thus putting pressure on Germany for the activation of the aid plan, hoping to leave the vortex caused by the crisis in Greek, and are opposed to any suggestion that the Greek debt restructuring would only increase the fears of the markets their credibility. But playing on the expectations of the market is not enough. The recent heavy recession has revealed that the economies of these countries have lost competitiveness. The predictions of a weak recovery question the ability of Portugal, Spain, Ireland and Italy also to honor the debts accumulated over the years.
In conclusion, the EU plan / IMF will not resolve the crisis neither Greek nor appianerà difficulties in other European countries in difficulty. This indicates how misleading is the idea that the single European currency could be saved by the enormous diversion of resources towards the Mediterranean countries. The proof is the political resistance that have occurred in Germany in respect of aid to Greece. So perhaps is the future of the euro.
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