Saturday, May 21, 2011

EconomicsEurope: Greece and Portugal: Defawlt on bail-out repayments elicits call for expulsion from EU


Financial Times email newsletter (May12,2k11)

Greece and Portugal should both go gracefully
Even as the ink is drying on Portugal’s European Union and International Monetary Fund bail-out agreement, evidence is mounting that last year’s bail-outs of Greece and Ireland have failed.

Far from improving their access to the financial markets, Greece and Ireland face record borrowing costs. Notwithstanding the slightly less draconian terms of Portugal’s agreement, it will surely suffer a similar fate.

The EU will try to get away with “soft” restructurings, involving a combination of longer maturities and lower interest rates. But this will not work and by 2013 there will be no viable alternative to “hard” restructurings (default), comprising debt write-downs of 50 per cent or more. Unfortunately, in the case of Greece and Portugal at least, even this will not guarantee continued membership of the euro.
FT email newsletter (May17,2k11):

Merkel rejects Greek debt restructuring
The German chancellor spells out her strong opposition to restructuring debt in any eurozone state, as finance ministers press Greece to accelerate its sell-off programme</blockquote>

The situation is dire for the economic recovery of both Greece and Portugal.  And the man most responsible for the International Monetary Fund's role in ensuring both countries, both countries having now defawlted, has resigned after scandal.  A new head of IMF has been designated, she being also from France and having been active in the bail-outs of the two countries which have failed to meet their obligations.

This is a dire situation for the global economy.  The USA trend toward a similar status, by defawlting on its national-debt interest payments, looks even bleaker against this portentous background.

-- EconoMix

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