It’s All Greek to Me
Jun 24, 2011
Posted by Jody Eisenman | Filed under Uncategorized
This week, the events in Greece seemed to overshadow almost anything else in the world of finance. One minute Greece was getting bailed out; the next minute they weren’t. Most everyone I have spoken to think that Greece will eventually default, however, everyone is trying to postpone the inevitable. “Not on my watch buddy!” Should Greece default now, several countries’ banks have significant exposure, the most prominent are France with $19.8 billion, and Germany with $26.3 billion. Moody’s, the rating agency, has placed Societe Generale, BNP Paribas and Credit Agricole on credit watch for a possible downgrade. All are headquartered in France. Meanwhile, many investors are terrified of contagion, which means that the crisis spreads to other countries. As such, the next major cause of concern is Spain. Spain has gone through a housing boom and bust, and now has a nationwide unemployment rate approaching a staggering 21%. Unfortunately, they are being forced to cut jobs in order to compete, and they cannot devalue their currency due to Eurozone pressures. There is much speculation that the Euro will not survive these crises.
Meanwhile, investors dumped equities after the Federal Reserve statement Wednesday afternoon. If you’d like to read it in its entirety, click here.
In a nutshell, the Fed stated the economy continued to grow at a slower pace than expected, and there was no talk of a “QE3”. The market continued its’ selloff this morning, but recovered later in the day on word that the EU/IMF inspectors have approved the Greek austerity program. The Greek parliament still must approve the set of unpopular spending cuts and tax increases by July 3 to obtain a 12 billion euro slice of emergency aid. Without help, the Greek government has said it will be unable to pay its debts by mid-July.
Analysts said that if Greece is unable to get the next portion of the loan, default is likely and could cause a domino effect in other areas of the Eurozone.
