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WHY EU GREEK AID DELAYS RAISE DEFAULT RISKS

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 Here’s a summary of a great article from businessinsider.com on why EU inaction is raising serious risks of Greek Default, with our own conclusions added at the end. See here for full article.

 

Wednesday, massive protests in Athens targeted the government’s austerity plans, which are needed in order to get EU/IMF aid.

However Tuesday night, EU finance ministers failed to come to a deal on the next bailout for Greece. That bailout has now been pushed back to July, at the earliest. Germany wants to defer a decision until September.

The inaction is due to the dispute between the ECB and some of the region’s political leadership (Germany, Finland, and Austria) over what burden banks should bear. Tuesday night, we found out what Moody’s thinks of that burden, with their outlook downgrade of French banks (thats why France opposes private sector involvement).

However as more time goes by, and Greece’s domestic political situation looks more and more unstable, it is unlikely the leaders of these Central European countries will be more willing to dole out the cash.

Per  Societe Generale: (via businessinsider.com)

With Greek unions calling for another general strike in Greece today, it would be staggeringly (sic) embarrassing for European Leaders to agree a new package for Greece later this month, only to have to concede that Greece needs even more money later in the year if Greek slips further behind on its programme targets. Hence, while the politicians argue, time may be beginning to slip away from them.”

By delaying the decision date on the next Greek bailout until July, EU leaders are straining the Greek government’s resolve. If Greece

  • can’t pass another round of austerity measures
  • can’t organize the privatization of state owned assets

Then the more hard line leaders in Germany, Austria, and Finland may either reject a bailout in July, or, they’ll have stronger incentive to push for the private sector to take a harder hit.

Right now, it all comes down to what happens in Athens. Rising political instability means thingsdo not look good.

Our take: ramifications – 

 

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