by Doug Marshall, CCIM
Market Assessment
And we thought we had problems...
The global financial crisis continues to rock governments and shake all sectors of life. Right now, it’s Greece who faces the biggest challenge that a country could: default on a national scale.
Over the past two weeks, Greece has come under massive attack from the European Commission, global banking and capital market institutions, and its own populace.
Loaded with a whopping GDP deficit of 12.7 percent, the EU has given the country’s financial minister and government three years in which to cut, slash, and tax its way to less than 3 percent.
If it can’t perform? Could it be expelled from the euro zone? Improbable. Could it suffer further ignominy and lose what’s left of its credibility? Very likely.
Parallels have even been drawn between the sovereign nation, embroiled in financial discredit and debt, and investment bank Bear Stearns, rescued by the Federal Reserve two years ago.
But the discussion surrounding this topic, especially from the executive of the European Commission, doesn’t seem quite as forgiving with Greece as The Fed was with Bear Stearns.
While European nations have indeed pledge to aid Greece “if needed to guard financial stability in the euro area”, the Commission is not about to approve the underwriting of a struggling nation without requiring proofs of action on the part of Greece to attempt the correction its promised.
“It will be up to the Greeks to prove that the existing adjustment program will be sufficient,” stated Luxembourg Prime Minister Jean-Claude Juncker. And the Commission has already warned Greece that, despite protests nationwide and strikes by public workers, it would keep a tight rein on and require another check in March to verify compliance.
Greece’s instability has already helped in recent months to torpedo the value of the euro, which has slid to a nine-month low against the dollar. 
But Greece’s Finance Minister George Papaconstantinou stresses that the effect of default by Greece would not create difficulty for the euro zone as a whole, the nation representing only two percent of the euro area’s economic output. “Today it’s Greece, tomorrow it could be another country”, says Papaconstantinou.
How Greece came to this is complicated and requires another discussion.
The European Commission has expressed outrage at the possibility that enormous debt might have been hidden through the use of currency swaps brokered by Goldman Sachs and others… there’s another matter altogether.
One national falter at a time!
Sources:
Rob Cox and Rolfe Winkler, Reuters’ Breakingviews.com, 2/11/2010 Aoife White, AP Press, 2/15/2010
