Wednesday, February 10, 2010

Greece problem does not have easy solutions

The politics are very difficult. Even if this problem is solved there are major political problems in the ability o the EU to respond to crisis.

Consider the European solution to the lack of an executive. Now it has three presidents: Van Rompuy, the president of the European Council (who is talking about "an economic government and greater control of national budgets), Zapatero, Spain's Premier who is also the rotating president of the EU and Barroso the President of the European Commission.

- Marc Chandler BBH

The most important point on why the EU will provide some help. They need to save the banks.

The real driver here is not that the private debt problem is becoming a sovereign debt problem, but the opposite--the sovereign debt problem is threatening to renew the private sector banking crisis. Consider the BIS data that is cited in press reports today: German bank exposure to Greece is 43 bln euros, to Protugal 47 bln euros, to Ireland 193 bln euros and to Spain 240 bln euros.

Greece needs to raise around €53 billion this year, a quarter of which (€13 billion) is simply to service the debt, i.e. interest payments.

- Marc Chandler BBH

The Stability and Growth Pact, which requires members to limit budget deficits to 3% of GDP and 60% debt to GDP, barring extenuating circumstances. The EU have been reluctant to enforce the agreement and now we are seeing the impact.

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