Greece Debt Crisis is NOT over yet

Useful reference(s): Financial Review 2011 Q2: Crisis Recurred. You may read also: Financial Review 2011 Q1: Rising Inflation Concerns

Greece debt crisis is still NOT over yet! Recently Greece has experienced street strikes in the interests of international aid it was agreed and requires to abstain bankruptcy. Lately its neighboring Eurozone countries are going to be anticipated to help make a second bailout plan for Greece to convince foreign investors the Eurozone will finally overcome the debt crisis.

The new austerity measures that lawmakers passed in Athens are needed to gain more bailout loans but will make bottomless changes over all sections of the nation. Worker wages will have to be taxed more, while major state assets such as gas, oil and water service providers will need also to be sold, perhaps to foreign companies.
Euro-zone Finance ministers come together on July 2, 2011 in Brussels to release a EUR 12 billion of rescue package. They should also go through the conditions of a 2nd rescue program meant to assure markets on Greece's long term prospects, though numerous experts believe the debt gap is so large that some sorts of default shall finally be necessary.

The IMF (International Monetary Fund) and EU (European Union) had said they would decline to pay for the coming instalment unless Greece lawmakers passed a new 5-year austerity plan worth of EUR 28 billion for budget cuts and tax increases, and also a EUR 50 billion state privatization programme, prior to the end-June.
The lawmakers did positively vote what was requested for them in a 2-day voting on June 29-30, 2011. Financial markets cheered, despite the anger grew rapidly in the city of Athens and the debt crisis has not been over. Over 300 people, around 50% of them are police, were hurt in the 2-day of disturbance outside the Greece parliament.

Evangelos Venizelos, the new Greece's Finance Minister for just not over 2 weeks, has publicly admitted that part of the austerity measures are not fair. However, he has also added that the nation has no other choice. If Greece had not passed such austerity bills, the country would have not been able to pay out salaries and pensions by mid-June. The major spokeswoman of the IMF, Caroline Atkinson, welcomed the voting result in Athens. She said that this should open the door for the quarterly review about the coming bailout installment from the IMF.

Shortly after the voting, the euro rebounded strongly against other currencies, including to $1.45 against the USD. With euro at current level, however, exports to the U.S. are now over 10% more costly than they were in June of 2010, intensifying ascent fiscal pressures, soaring commodity prices, and already spiky borrowing rates.

Now the debt crisis is not over and Greece has just successfully gained a postponement for a few more months. The coming batch of bailout package will soon see it through Sept 2011, by that time Greece will have to demonstrate it has fully implemented what it promised before the country can obtain any additional rescue. Greece does need the second rescue program to settle market worries for a default.

The detailed information about the second rescue program from Greece's global creditors remains to be seen. George Papandreou, Greece's Prime Minister, has indicated its size will roughly be comparable to the previous one. However, it is still not clear how much money will be granted from private investors through voluntary debt roll-over and also how much money from Greece's asset sales will be used to fund the financial gaps. The participation of the private fund is probable to be discussed seriously at the Brussels since Germany bankers made a concession to roll-over part of the debts that Greece still owes them.

In recent weeks, investors of worldwide markets fear of a Greece debt default could trigger an extensive banking crisis with disturbance in financial markets, comparable to what happened in 2008 when Lehman Brothers collapsed in the U.S.

There are still lots of unanswered questions regarding the effective enforcement of Greece austerity measures, given the background of raising public anger in the nation. Some economists anticipate it is impossible that Greece will not finally need to restructure its debts, and negotiating extension of repayment period or giving its creditors fewer than the total amount originally owed. They anticipate the Greece debt crisis will just continue as its debts of EUR 340 billion are simply too large for a state with only 11 million population to manage, no matter what austerity measures are imposed.

In fact, Greece has never delivered on its previous promises before so, it is hard to expect that they will be capable to deliver on this time so far the toughest of all their promises. What should be the final outcome of this debt crisis? A debt restructuring for Greece seems to be unavoidable, although EU and IMF will still continue to squeeze as much money as they can from Greece to back their loans, probably until they realise that no any further austerity plan can be imposed to Greece.