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Fireworks ahead this week from the euro and the Greek debt crisis
05/31/2011 12:26 pm EST
The odds that Greece would pass this review got worse last week when, on May 24, Greek Prime Minister George Papandreou failed to win agreement on new austerity measures from the main opposition parties. The new measures include an additional $8.5 billion in budget cuts and new sales of state-assets.
The Greek people shouldn’t be “trapped by blackmail,” said Aleka Papariga head of the Communist Party of Greece, after the talks. Antonis Samaras, leader of the biggest opposition party New Democracy, called the new steps the “same old failed recipes.”
Sounds like promising grounds for a compromise, no?
The troika has demanded that Greece adopt these budget measures before it approves the next tranche of the initial bailout and before considering additional aid for 2012. The original rescue plan imagined that Greece would be able to resume borrowing in the capital markets in 2012. That’s clearly not going to happen. The yield on 10-year Greek debt finished the week at 16.4%. That’s twice the yield at the time of the original bailout.
I’d expect that this week will be full of political maneuvering and press releases as one side or the other argues its position in public. This morning, for example, we’ve already had a big market reaction—to the upside--to Sunday’s remarks by Jean-Claude Juncker, head of the European Group of finance ministers, that a solution will be worked out by the end of June. And a big market reaction—to the downside—to remarks in Germany’s parliament that Greece should leave the euro.
(It’s a minor problem, I’ll admit, but it seems odd to be talking about “troikas” during a Greek crisis. Maybe instead of the Russian term, we could find something fitting from Greek myth. Hydra? Nah,the hydra had many heads, but the number was indeterminate since it grew two more whenever a hero chopped off one. How about “Cerberus,” the three-headed dog that guarded the way to the underworld? Not very flattering certainly to global bankers, but it does have the right number of heads.)
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