Global News Journal
Beyond the World news headlines
Greece and the euro zone are still very much in the midst of a debt and deficit storm, with not just Athens but possibly Portugal and Spain at risk of being swept up in the maelstrom.
But that hasn’t stopped economists and political analysts looking for a silver lining in this unprecedented meltdown.
One positive is the impact the uncertainty is having on the euro, which has weakened sharply against the dollar and the British pound this year. That may not be very good for those in the United States or Britain holding euro-denominated assets, but it’s good for European exporters, whose goods become relatively less expensive for importers.
As Jennifer McKeown, a senior economist with Capital Economics, pointed out in a research note on Thursday, euro zone export orders are sharply up (by some counts they are now the highest in 10 years), while in April, euro zone manufacturing expanded at its fastest rate since November 2006, according to Markit.
The 16 countries that share the euro single currency have agreed they will help Greece out if it needs. So far so good. But only now is the nitty-gritty of how member states will go about paying for their contributions being hammered out. And suddenly things are getting a little complicated.
Italy announced on Tuesday it would have to issue government bonds — known as BTPs – to raise funds for its part in any Greek assistance.
The surge in the spread of Greek bond yields over German ones since European leaders issued a promise of emergency loans to Greece last month indicates financial markets do not believe the pledge of euro zone support is anything more than a bluff.
And they are itching to call it.
Euro zone leaders have been betting that a promise of loans to Greece and strong words of political support will be enough to calm markets and allow Athens to borrow at more reasonable rates, therefore rendering any real aid — the dreaded bailout — unnecessary.
The periphery economies of the euro zone are suddenly in the spotlight. Credit rating agency Standard & Poor's has cut its outlook on Ireland's sovereign debt to negative. It worries that fiscal measures to recapitalise banks and boost the economy might not improve competitiveness, diversity and growth -- all making it harder to manage debt.
Next came Greece. S&P basically put the country on watch with a negative bias. The global financial crisis has increased the risk of a difficult and long-lasting struggle to keep the Greek economy on track, it said.