And so a $146 billion bailout package for Greece was approved this weekend. That's good news, right? Wrong.
It's not just the beginning of the problem, the bailout could make it worse.
First, we have Dr Doom Nouriel Roubini warning that we are about to see a series of sovereign defaults for European Union (EU) nations. That will be disastrous for Europe, and the global economy. Bond vigilantes are walking away from Greece, Portugal and Spain. Bailouts won't help. If Roubini is right, it means there will be many more bailouts. Can Europe and the International Monetary Fund sustain that?
Secondly, there are serious doubts whether Greece can actually pull off the austerity measures that include spending cuts and tax hikes worth 30 billion euros over three years, on top of belt-tightening measures already taken.. There are two big questions. Will this solve Greece's fundamental problems? And what about Spain and Portugal, not to mention the other PIIGS?
All that explains why the Euro is being hammered. "Greece is a Lehman Brothers for the sovereign world," Robin Marshall, who helps oversee $20 billion as director of fixed income at Smith & Williamson Asset Management in London, told Bloomberg. "A 100 billion euro package is a big amount and it might help to buy Greece some breathing space, but as an investor I'm still cautious. Policy makers can promise what they like, I still have doubts that the Greeks will have the stomach to take these tough measures."
Politically, we can expect this to have a massive impact with a new opinion poll showing that 57% of German voters think the Greek bailout plan stinks. This might well rattle Germany's political foundations.
The austerity measures and the hard line taken by Germany have also triggered May Day riots in Greece. We can expect the Greek chorus to get louder as Europe teeters on the edge of disaster.
The bailout is unlikely to solve anything in the long term. If the doomsayers are right, things are going to get a lot worse.
no comment untill now