greece debt crisis

greece debt crisis

"Germany is going to have to shoulder Greece's debt burden … but no one dares tell the German taxpayer," wrote Henryk Muller in the online version of Der Spiegel.

Some commentators suggested calls would grow for the return of the beloved currency the Germans relinquished just over a decade ago, in return for economic stability in Europe.

"At this rate the Germans will wish the return of the deutschmark," said the Frankfurter Allgemeine Zeitung in an acerbic editorial, stressing that Germany had not signed up to the euro "in order that it could pay for Greece's debts … this is not how they sold the euro to the Germans". Most German politicians were cautious about criticising Greece for its poor public spending management.

But within the Free Democrats (FDP), the junior partner in Angela Merkel's coalition government, the dissent was loudest.

"We cannot expect the citizens, whose taxes are already too high, to go along with supporting the erroneous financial and budget policy of other states of the eurozone," said Karl-Ludwig Thiele, the vice-chief whip of the FDP, adding that Greece's financial crisis was "not a result of the economic crisis, but self-made".

Addressing the German public's concerns about what the effect on German finances might be if it helped Greece by agreeing to buy Greek debt, Die Welt said "it would have a negative impact on Germany's ­creditworthiness", and could end up "costing every German taxpayer an extra 40 euros this year".

An indication of how truly stoked German fears were was the FAZ's ­concern that Germany may even end up paying for Greece's retirees.

"The Greeks go onto the streets to protest against the increase of the ­pension age from 61 to 63.

"Does that mean that the Germans should in future extend the working age from 67 to 69, so that the Greeks can enjoy their retirement?"

Several German economists warned that the collapse of the euro was a possibility.

"If Greece is bust, it could bring the whole euro system down," said ­financial markets expert Rudolf Hickel, of the institute for labour and ­economy at the University of Bremen.

"There are enough people speculating on the markets about the possible bankruptcy of Greece, and once Greece goes, they would then turn their attentions to Spain and Italy, and Germany and France would be forced to step in once again," he said.

Reports that prices of imported goods would probably rise over the next few weeks if the euro continued to weaken were also rife.

"The less the euro is worth, the more we'll have to pay for petrol, heating oil and gas," wrote a commentator in the tabloid Bild under the heading: The desperate fight to save the euro has begun.

On the positive side though, the paper suggested that demand for ­German exports, which has taken a savage hit during the financial crisis because they have been too expensive abroad, would rise as the euro weakened.



ATHENS – Greece was pushed to the brink of a financial abyss and started dragging another eurozone country — Portugal — down with it Tuesday, fueling fears of a continent-wide debt meltdown.

Stocks around the world tanked when ratings agency Standard & Poor's downgraded Greek bonds to junk status and downgraded Portugese bonds two notches, showing investors that Greece's financial contagion is spreading.

Major European exchanges fell more than 2.5 percent, and on Wall Street, the Dow Jones industrial average finished down more than 200 points. The euro slid more than 1 percent to nearly an eight-month low.

"We have the makings of a market crisis here," said Neil Mackinnon, global macro strategist at VTB Capital.

Greece is struggling with massive debt, and with prospects for economic growth weak it could end up in default. Its 15 eurozone partners and the International Monetary Fund have tried to calm the markets with a euro45 billion rescue package, but it hasn't worked.

Standard & Poor's warned that holders of Greek debt could take large losses in any restructuring, but a greater worry is that Greece's debt crisis is mushrooming to other debt-laden members of the eurozone.

One bailout can be dealt with but two will be stretching it, and there are fears that other weak economies could be pulled down in the Greek spiral — including Europe's fifth-largest, Spain. Can Germany, Europe's effective paymaster, continue to bail out the weaker members of the eurozone?

The crisis threatens to undermine the euro and make it harder and more expensive for all eurozone governments to borrow money.

It has also disrupted cooperation between eurozone governments, with Germany resisting the idea of bailing out Greece unless strict conditions are met.

Many investors think Greece will have enough money to avoid default in the coming weeks, but the future is cloudier.

Both Standard & Poor's and the Greek finance ministry insisted that the country will have enough money to make the euro8.5 billion bond payments due on May 19.

Even if it does, Greece faces years of austerity with living standards sharply reduced. Standard & Poor's warned that the Greek economy was unlikely to be as big as it was in 2008 for another decade.

Junk status sinks Greece's hopes even deeper. Losing investment-grade status for its bonds means that Greece will have to pay higher costs to borrow if it taps debt markets again, and increases the chances that existing debt will have to be restructured.

"The latest developments mean that the chances of Greece solving this situation without restructuring its debts are now dim," said Diego Iscaro, senior economist at IHS Global Insight.

German Chancellor Angela Merkel reiterated her position that Greece should first conclude the current negotiations with the IMF and the European Union about austerity measures for the coming years before receiving the international loan package.

Speaking at an election rally Tuesday afternoon, Merkel said it is appropriate to tell Greeks, "You have to economize, you have to become fair, you have to be honest; if not, nobody can help you," according to the German news agency DAPD.

A government spokesman said Tuesday evening he could not tell if Merkel was at that point aware of the latest downgrade. He declined to be named in line with government policy.

The FTSE 100 index of leading British shares closed down 2.6 percent, Germany's DAX slid 2.7 percent and the French CAC-40 in France ended 3.8 percent lower.

Greek and Portuguese stocks were pounded — down 6.7 percent and 5.4 percent, respectively — while their market borrowing costs went through the roof. The interest rate for Greek two-year bonds jumped to a massive 18 percent.

The interest rate gap, or spread, between Portugese and benchmark German 10-year bonds rose about half a percentage point Tuesday to reach its highest point since the euro came into circulation. The higher the gap, the less confidence in Portugal; its bonds on Tuesday had an interest rate 5.86 percentage points higher than German bonds.

Both the Portugese and Greek governments have imposed budget cutbacks against political resistance from unions at home. Markets have been skeptical that they can push through enough cuts, given political resistance, to put their finances in order.

Both governments responded with alarm at the downgrades.

"This decision will not help markets to calm down, but will, on the contrary, contribute for their turbulence," Portugese Finance Minister Fernando Teixeira dos Santos said.

Greek Finance Minister George Papaconstantinou said the downgrade "does not reflect the real state of our economy, nor the fiscal situation, nor the ongoing negotiations which have the very realistic propects that they will be completed successfully in the next few days."

Papaconstantinou said Greece will pull through.

"One wishes that Europe had acted a little differently. Three and four months ago we were saying that the mechanism must be ready and it must be detailed, that the markets must know what exactly is going. Unfortunately, for a series of political reasons, we are down to the wire," he said.

The crisis has highlighted the eurozone's inability to keep governments from undermining the euro by running up big debts. Rules that limit deficits to 3 percent of gross domestic product have been widely flouted, and EU officials are talking about ways to strengthen them.


Germany's Chancellor Angela Merkel, Greece's Prime Minister George Papandreou and France's President Nicolas Sarkozy leave the EU Council building after a meeting before an informal summit of European Union heads of state and government in Brussels February 11, 2010.