Thursday, May 06, 2010

"Nothing Less Than the Future of Europe" at Stake

Moody's warned today that the Greek debt crisis could spread to Portugal, Italy, Spain, Ireland, and the UK.

The credit ratings agency says the risk to other countries hinges on the success of the EU and IMF rescue packages for Greece. Market confidence in those packages, and their ultimate effect, is critical to Greece's future, as well as, perhaps, that of Europe.

Moody's says British, Spanish and Irish banks were more exposed to the credit crunch and have weakened their countries' finances significantly over the past year.

Like Greece, the banking systems of Portugal and Italy were not hit too hard by the global financial crisis. But their huge public debt load remains a threat.

Yesterday, Moody's put Portugal on watch for a possible downgrade. Just last week, Standard & Poor’s downgraded the debt of both Greece and Portugal.

Greece is less than two weeks away from potentially defaulting on its debt. The Mediterranean nation is due to make debt payments on May 19. Other countries owed money by Greece could be thrown into turmoil should Greece default.

In order to secure the multi-billion dollar bailouts from the EU and IMF, the Greek parliament is today set to force draconian austerity measures on already furious workers rioting across the nation.

Three bank workers, one of them pregnant, were killed yesterday during protests by up to 100,000 Greeks against the spending cuts.

The conditions for the loans are government cutbacks that will slash salaries and pensions for civil servants, in addition to raising consumer taxes.

However, markets around the world fear these measures still won't be enough, resulting in widespread stock market declines. Fears that the debt crisis will spread have also caused the euro to fall to its lowest level in more than a year.

Despite the rioting and protests, Prime Minister George Papandreou pledged to stick with the austerity plan, saying, "The alternative would be bankruptcy."

Without the eurozone and IMF rescue package — under which Athens will receive loans at interest rates of about 5 percent — the country will be unable to refinance its debt.

Investors are so dubious about Greece that its borrowing costs on the international market have soared to unmanageable levels. Interest rates have climbed above 10 percent — four times those of Germany's.

German Chancellor Angela Merkel urged parliament to quickly pass her country's share of the bailout, warning that, "Nothing less than the future of Europe" was at stake.

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