Saturday, October 8, 2011

'The Finale of the Greek Drama Is Drawing Closer'

The good news is that Greece will remain solvent until mid-November, despite the decision reached on Monday evening by euro-zone finance ministers meeting in Luxembourg to delay payment of the next tranche from the €110 bailout fund put together in 2010. That, at least, is what Greek Finance Minister Evangelos Venizelos said on Tuesday. Athens, he said, would have "no problem" meeting its domestic and international obligations.

The bad news, though, is that such reassurances are no longer enough to calm jittery markets. European stock markets plunged for the second day in a row on Tuesday amid growing concerns that avoiding insolvency may no longer be possible for Greece. Many see the delayed payment as yet more evidence that Athens has not fulfilled its austerity pledges made when the bailout package was assembled.

Furthermore, Greece revealed on Sunday that it's 2011 budget deficit would be a significantly larger proportion of its gross domestic product than it had promised in exchange for a second bailout, worth €109 billion, tentatively agreed to in July. Compounding the problem, on Monday new information also showed that the Greek economy would likely shrink further in 2012, instead of registering the slight growth officials had been hoping for.

Athens had originally insisted that funding would begin drying up by mid-October without the pending €8 billion payment tranche. That payment depends on the result of a report currently being assembled by the International Monetary Fund, the European Union and the European Central Bank, the so-called "troika." more