The Plot Thickens in Greece
An update from the currency exchange firm World First.
The story in the markets at the moment is Greece. A country that contributes roughly 2% of the EU’s GDP could contribute to the downfall of the biggest single currency experiment since cavemen fashioned tokens from shiny rocks.
But it won’t. The Union must come first. A poll in the German paper Bild am Sonntag showed that the 53% of respondents wanted Greece thrown out of the EU and over 60% were adamant that German money should not be paid to the Greeks in the form of a bailout. Germans obviously have short memories; it was the beggar thy neighbor approach to crisis in 2008 that extended the downturn. A similar lack of foresight would likely see this Hellenic hell spiral down deeper.
Angela Merkel is a canny political operator; you have to be to become the first female Chancellor. The fact is that the German economy is exposed to the PIIGS heavily. German investment in Portuguese, Irish, Italian, Greek and Spanish debt roughly equates to 19% of German GDP ($3.65 trillion in 2008). $693.5bn; so roughly the same size as the Polish economy or half the size of Canadian GDP. Germany simply can’t afford to let Greece or any other EU members go bust. Doing so would leave a hole in their finances so monstrous that the rest of the EU would implode.
There is a split in the ruling coalition with one politician going as far to say “Solving this problem cannot be about aid for Greece. If anything, it’s about keeping any damage away from German taxpayers.”
The outlook for the euro is, as a result, weak. Hedge Funds and the speculative fraternity will look to drive the currency to its knees as rumor and uncertainty continues to swirl. The EU economy was the least well equipped to deal with the problems that the credit crunch and the winds of austerity brought to its shores.
There is a meeting going on between European finance ministers to discuss the Greek problem Change in a normal state normally moves in painfully slow increments. Greece cannot wait forever though; if no bailout is forthcoming by April then the Uk along with its European neighbors, will be entering a chapter of financial history that would truly define downturn.
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