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TwitterWith soaring debts, a dipping economy, and an incredibly bloated public sector- Greece is clearly in big trouble. Will it succumb? Besides, it’s not just Greece, the problem is also that the stench is permeating. And Fast.
European leaders, who now face the noose, in the form of their credibility as a union and the Euro as a common currency, today agreed on a political statement to deal with the imminent crisis. Though the details will be worked out by the finance ministers on Monday, the countries of The Euro Zone are planning the financing of loans to Greece.
They insist that they will draw on the expertise of the International Monetary Fund to implement it and also impose certain conditions on the Greek government in Athens.
“Its important to have solidarity,” said Mr. Werner Faymann, Austria’s Chancellor. “It is a situation where the countries of the euro zone can work together — can find solutions together also with the International Monetary Fund.”
EU will be looking to IMF to help them out
The plan’s success is dependent on the willingness of the countries to extend credit. The countries now face a dilemma since fears of the a default have already caused a market slump in general, and also raise serious doubts on the credibility of the Euro, in particular. Resorting to the International Monetary Fund for financial help, is considered too humiliating to be tolerable, while channelizing endogenous taxpayer resources to bailout other countries will require some serious tolerance on the part of the citizens (of the countries extending the credit).
The leaders of the 16 countries that use the Euro along with the President of the European Central Bank, Jean-Claude Trichet, have agreed that they will not allow the uncertainty of the future of Greece, to deter investors. However, they left in a haze the structure of how the loans would be extended, and which countries would pledge to buy Greek bonds should the need arise. Germany and France, though are increasingly finding themselves in the role of the local IMF. Another problem is the avalanche effect which such a bailout would extend. If one country is bailed out by the others, investors will come to expect a similar response should other weak economies that use the Euro, including Portugal and Spain, fall into serious trouble. “At this junction they will have to support Greece,” Simon Tilford, chief economist at the Center for European Reform, said of Europe’s politicians. “If you have encouraged the markets to believe that support is forthcoming and then it is not, we will see a backlash” in financial markets.
It is increasingly believed that instead of extending a guarantee to Greek loans, European leaders would rather agree to the extension of credit, with the condition that changes supervised by the IMF are undertaken by the Government at Athens.
Are the Greek-Gods listening?
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