Greece verges on default

[Hannah Bell]

Concerns over Greece’s solvency were renewed on Tuesday after Fitch Ratings downgraded Greece’s debt rating from A- to BBB+.

In response to the news, the Athens stock exchange index dropped 6 percent on Tuesday and a further 3.4 percent on Wednesday. In an interview with Bloomberg, former Bank of England policy maker Willem Buiter said, “It’s five minutes to midnight for Greece. Default is not unavoidable, but unless there are radical fiscal actions…we could see our first EU 15 sovereign default since Germany in 1948.”

...Greece has the highest public debt in the EU, projected to rise from 99 percent to 125 percent of GDP in 2010. In a televised cabinet meeting, Greek Prime Minister George Papandreou said, “We must close the credibility gap to survive as a sovereign and cohesive nation.” He added, “We are determined to do whatever it takes to control the huge deficit.”

Just like other members of the Eurozone, the Greek government raises funds by issuing bonds benchmarked against German state bonds, with the interest rate difference between them defined as the “spread.” If the spread increases, so does the cost of government borrowing. The last few weeks have seen volatile fluctuations in the Greek/German bond spread.

...Mindful that they will not be able to roll over their debt in future, the banks have already begun to sell their bond holdings...This has contributed to the plummeting of the value of Greek bonds, which has further pushed up the government’s cost of borrowing.

Even during the boom years, with the average wage at €650 to €800 a month, the majority were forced to borrow in order to make ends meet. At the height of the boom in 2006, apart from Spain and Portugal, Greece had the lowest minimum wage in the European Union and 27 percent of the population was officially classified as poor.

While the consensus amongst the Greek ruling class is that severe austerity measures are necessary to salvage their position, they are acutely aware that they possess an extremely narrow social base to carry this through...

http://www.wsws.org/articles/2009/dec2009/gree-d12.shtml

[leftstreet]

1. This is getting bad. They're gonna get IMF'ed up

wow

[upi402]

2. Remember the EU worrying about Italy being a basket case? n/t