The vacations for the European leaders seem to reach their end and it is time to come back to work. There are two major topics. Firstly, European leaders have to agree on measures, in order to support Greece and prevent its exit from the Eurozone. Secondly, they have to act in order to prevent Italy and Spain being shut out of sovereign debt markets.
This week will be crucial while intensive diplomacy will take place as Eurozone will try to find ways to defuse the European crisis amid arguments on the ECB?s role and how to help Greece. Jean-Claude Juncker is expected in Athens on August 22 to discuss with Antonis Samara?s request of a two-year extension for the fiscal adjustment program. Then, the Greek Prime minister will travel to Berlin and Paris on August 24 and 25.
Greece?s troika of international creditors will return to Athens in early September to evaluate the progress as the Greek Administration seeks to hammer out 11.5 billion Euros in budget cuts for 2013 and 2014. Greece has to cut as much as 14 billion Euros over the next two years, in order to meet its deficit targets due to setbacks in planned privatizations and lower tax income.
The good news for Greece is that its certain successive bombshells start to persuade a growing number of economists to change their minds and express their opinion that the country?s fate lies inside the currency union rather than out of it. For economists, the country?s future in the Eurozone is no longer an economic question. According to their opinion, it is a question of political willpower, which remains firm in Athens and Brussels, in spite of opposition from politicians in Germany.
There is a strong belief now that Greece will be in the Eurozone in 12 months. Despite the economic difficulties, that this country faces, the formation of a workable, pro-bailout government is a major reason why economists are more inclined to believe that Greece will remain a member of the single currency club. Moreover, the fact that the Troika keeps coming back to Athens shows that there is a broader political view that Greece?s insolvency should be managed within the Eurozone rather than pushing Greece towards the exit.
On the contrary, Joerg Asmussen, a European Central Bank policymaker mentioned that a Greek exit from the Eurozone would be manageable, although he would prefer this country to remain within the Eurozone. He stated that it is in the hands of Greece to make it and made clear that a Greek exit could cause a lot of problems. It would be associated with a loss of growth and higher unemployment and it would be very expensive, not only in Greece, but in Germany and Europe as a whole.
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10 year Bonds
| Country | 10 years Bond (current) |
| Greece | 24.47 |
| Cyprus | 7.00 |
| Portugal | 9.83 |
| Spain | 6.53 |
| Germany | 1.51 |
| Italy | 5.79 |
| United States of America | 1.81 |
| Australia | 3.36 |
| Canada | 1.95 |
| United Kingdom | 1.69 |
| Japan | 0.84 |
Source:?http://markets.ft.com/RESEARCH/Markets/Government-Bond-Spreads
http://www.ecb.int/stats/money/long/html/index.en.html
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More News
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Monti Says ?Tragedy? If Euro Became A Factor Of Disruption
Italian Prime Minister?Mario Monti?said it would be a tragedy if European leaders are unable to ease tension and bring stability to common currency area?
http://www.bloomberg.com/news/2012-08-19/monti-says-tragedy-if-euro-became-a-factor-of-disruption.html
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ECB mulling interest rate threshold for bond buys
The European Central Bank is considering setting interest rate thresholds for any purchases of struggling?euro zone?country?s bonds so that it would buy such bonds if their interest rates exceeded a certain premium over German bonds, a German magazine reported?
http://www.reuters.com/article/2012/08/19/us-ecb-bonds-idUSBRE87I02Z20120819
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Merkel mulls easing Greece bailout?terms
Chancellor Angela Merkel is considering easing Greece?s bailout terms, fanning tensions with members of her coalition who oppose giving the Greek government any more concessions, two German lawmakers said?
http://business.financialpost.com/2012/08/17/merkel-mulls-easing-greece-bailout-terms/
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Sources:
http://www.bloomberg.com/news/2012-08-19/eu-leaders-plan-shuttle-talks-to-bolster-greece-sovereign-bonds.html
http://business.financialpost.com/2012/08/17/greeces-future-in-eurozone-more-secure-analysts-increasingly-believe/
http://www.reuters.com/article/2012/08/19/us-ecb-asmussen-idUSBRE87I0CV20120819
Source: http://www.prosperityunbound.com/economics-news-from-the-desk-of-elena-panaritis-20-08-2012/
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