EDITORIAL – Greece’s fall could shake world market
Though not immediately affecting us, the financial situation in Europe has some repercussions for our economy. If their problems are well understood, we should be terrified at what’s currently happening in Portugal, Italy, Ireland, Greece and Spain (PIIGS).
We only have to examine recent developments. On Friday, a German member of the European Central Bank suddenly resigned in disgust – a shocking move perceived by most analysts to be an indication of intense German anger at the high cost of attempts to save the PIIGS and stabilize the European economy.
In addition, late last week, Germany’s Minister of Finance Wolfgang Schäuble said Greece had violated the promises it made in return for its first bailout and threatened that its next bailout might be withheld with significant consequences for its economy.
On Sunday, Greece’s finance minister announced that in 2011, his country’s economy had performed even worse than projected. It will not shrink at about 3.8 per cent as previously reported, but will decline at about 5.3 per cent.
That means the government tax revenues – and its ability to service its massive debts – will plunge much faster than previously thought. This has placed French and German banks in grave danger.
On Sunday, French government officials braced for expected ratings downgrades on France’s three largest banks which recently said they hold US$13.4 billion in Greek debt. German Chancellor Angela Merkel’s government is trying to save its banks, which reportedly hold US$14.1 billion in Greek debt.
Obviously, investors are worrying now. Stocks are suffering worldwide, particularly European bank stocks. Their share prices are down over 50 per cent over the last three months. The situation is the same in the United States. In the forex market, the euro is at a six-month low against the dollar and a ten-year low against the yen.
Any way you look at it, Greece’s demise is imminent. Later this month, German lawmakers will vote on whether or not to approve the next Greek aid package.
In a recent poll, a whopping 53 per cent of Germans oppose further aid to Greece.
And to add insult to injury, France’s Budget Minister Valerie Pecresse has also threatened to halt her country’s bailouts to Greece. There’s no guarantee that either France or Germany will wait even one more day – let alone for a week or two – to demand that Greece leave the European Union (EU).
If or when that happens, there will be an explosion of stock market volatility and surges in precious metals that will make everything else seen so far in this crisis pale by comparison.
Greece is only the first of the five PIIGS countries to approach default. Ireland, Portugal, Italy and Spain are also in danger. Needless to say, these fiascos will have a catastrophic impact on the EU, the euro and the global economy as a whole.