WAR OF NERVES OVER GREECE

When the G8 countries meet in Deauville, France the biggest threats to the global economy is the U.S. budget deficit and the euro crisis. Euro crisis development and the acute situation in Greece, will have been one of the main topics on the meeting.

The current French finance minister, Christine Lagarde, will be the next head of the International Monetary Fund, IMF, and when she has confirmed her role no one will most probably challenge her for the position. It is probably the last time a Frenchman, or European, gets the job as the “world's bank chief of crisis”. Although Europe is the largest contributor to the Fund, it is the world economy is distressed as growth is occurring in former developing countries as they are moving out of poverty while West lack fiscal discipline, financial capacity and credibility.

Moody's has downgraded Greece's debt to "highly speculative" prompting an angry response from the finance ministry. Greek bonds fell after the rating agency cut its rating from Ba1 to B1.

The blue line shows the interest rate spread on long-term Greek government bonds over the equivalent bonds issued by the German government. The other two lines show the ratings assigned to Greek sovereign debt by S&P and Moody's since January 2008, normalized so that they're on the same scale.

source: angrybearblog.com

The Graph shows 10 yrs price on money that greece have to pay

source: howestreet.com

Greece's Finance Minister, Giorgos Papakonstantinou, explained in a Greek television interview that if the next part of the loan package to Greece will not be paid as scheduled in June, the country would simply go bankrupt. “
Loans cannot be repaid and salaries cannot be paid.“ The statement reflects that Greece is being stressed as the Greek government is fighting against a sceptical public opinion and rebellious unions. The Greek government is trying to strategically game for better credit condition from the EU, the European Central Bank and the IMF, that to the opposite is trying to pressure Greece to implement the most effective reforms possible before the inevitable step has to be taken in order to restructure the loans given to Greece.

Sooner or later the Greek public debt has to be reduced, written off or restructured in a creative way - without threatening the financial stability or political prestige of the country. The German "Der Spiegel" warns the Eurogroup Chairman Jean-Claude Juncker for a national bankruptcy, and to open up a "soft" restructuring of the Greek loans - with lower interest rates and extended maturities.

The political turbulence in Greece is increasing. The country has been ordered to sell state property to quickly release liquidity, 50 billion, as it is intended. By comparison, there are Greek government bonds worth 270 billion Euros on the market, where a third expires before the end of 2013. But the sales of government property are not appreciated by the unions or by the public. Many Greeks see it as a way of transfering value from Greece to the leading creditor nations.

Public protests have not passed by Brussels unnoticeable, EU requires that the Greek government reach a broad settlement with the opposition regarding essential actions, similar to what has occurred with Ireland and Portugal, however the problem is that the demand for Greece to live up to political unity may be unrealistic.

Nearly 80% of Greeks say they are not capable of more cost-cutting measures or tax increases - even though they are waiting around the corner. Maybe it is time for “the troika”, the team of EU, the European Central Bank and the IMF to put away the whip and start waving a bit of carrot. I think the next head of the IMF, Christine Lagarde, will have to begin to show a different attitude toward the Greeks. It is not easy to get acceptance of life standard cuts from the Greek people. To get acceptance for todays cuttings the future rewards must be clear.

Source: Dagens industri and Svenska Dagbladet