Greece Comes Back Into The Economic Spotlight As It Becomes Clear Already-Promised Aid Will Not Be Enough

Wednesday, August 22, 2012 07:03
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Greece Comes Back Into The Economic Spotlight As It Becomes Clear Already-Promised Aid Will Not Be Enough

Tags: European crisis | European zone | global investing | world economy

If you thought the crisis in Greece had abated, you would be mistaken. Greece is pushing for more time to meet the requirements laid out in the bailout package it was promised this past spring. It insists it is not asking for more money, just more time.

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But realistically, Greece is quite likely to need more money. Much more. And so, we once again face the likelihood that Greece may have to pull out of the euro—a fate that largely rests on the shoulders of Germany’s chancellor, Angela Merkel.
 
Billions more euros are what Greece will need to avoid bankruptcy. If Greece is forced to leave the euro (i.e., it doesn’t get the funding it needs), confidence in the union will be undermined as investors begin to wonder if Spain and Italy will not also be forced to follow suit.
 
Meanwhile, Merkel’s junior coalition partners are threatening to abandon her, taking away her governing majority and the only plausible way to secure funding for Greece.
 
On Friday, Germany’s prime minister Antonis Samaras is expected to meet with Merkel and ask for a two-year extension on meeting the terms of the last bailout. On Saturday, he will meet with French president François Hollande, who has taken a more accommodating stance toward Greece.
 
Analysts think that Merkel will not agree to additional funds for Greece. What Germany could do, however, is to distribute the promised funds sooner, easing the path toward reduced spending and ultimate repayment.
 
As it is, Greece could run out of money as soon as October. If Europe does not agree to more funds, the onus falls to the International Monetary Fund (IMF). Granted, more concern is focused on Spain and Italy because of the size of their economies.
 
But although Greece only represents 2% of the Eurozone’s economy, its departure would crack the union, proving the possibility of exit from the union and cracking investor confidence in the union.

 

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