More Trouble in Eurozone? By Ambassador mo
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Greece continues to be unsettling, though in perhaps a manner not yet fully considered. As Greece engages in negotiations with its private creditors (the talks had broken-off last week but resumed late this week) regard 200+billion of debt, the interests become divergent perhaps in some not so immediately perceived manner. A deep haircut/reduction to such existing debt along with lowest possible new interest rate to be paid on such restructured bonds is presumably in interest of Greece and perhaps overall EU economic recovery. However, if too deep a reduction is ultimately adopted voluntarily or not this could trigger other weaker economies and their electorate suffering under austerity to also press with threat of sovereign debt default and/or renegotiation. This could trigger another form of contagion and continue another unsettling undercurrent – a lack of confidence in the Eurozone economies by investors. (One of the reasons we have seen such recent stabilization in sovereign debt rates in most Eurozone countries is banks/financial institutions reentering the markets, even if such are effectively prompted by cheap loans from the European Central Bank –ECB- in a conscious policy strategy be new Chief Mario Draghi).
Greece desperately needs as low rates as possible to mitigate effects of austerity and enhance growth prospects – otherwise it will be stuck in this state for next decade. Such a steep reduction could though not be entirely compatible with broader confidence in EU/Eurozone debt. Finland also exemplifies the domestic dilemma and mixed benefits of belonging to the Euro. In this instance both Greece and Finland may be symptomatic of a broader debate coming in waves of elections and parliamentary debates around Europe. Read –"Eurozone Downgrades from Bad to Worse” .
By Ambassador Muhamed Sacirbey
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