Wednesday, May 5, 2010

PIIGS Beginning To Fly?

European market indices rose quickly earlier this month on accounts of buoying generated by the Euro-Zone members confirming a Greek Bail-Out package worth Euro 110 billion, only to drop heavily the next day.

The indices all around Europe saw 2 to 3 % decline in their grades, elucidating the still-to-be-addressed-dissatisfaction of the investors who are on tenterhooks regarding a still very likely prospect of Greek default.

It’s noteworthy that even German chancellor Angela Merkel changed her stance toward ‘profligate’ Greece, evident by her efforts to try and win support of the Greek parliament on issues regarding Germany’s share of chipping-in of funds going to Greek Bail-Out.

She can be right; Germany can gain in the long run as its succour in the bail-out authorises it to borrow money at ever-lower interest rates and lend at ever-higher. But if the deal flounders, Euro-Zone leaders will have to face hard-times explaining to their citizens the impossibility of their money coming ever back again; they’ll be made to eat a humble pie.

And that’s what worries and scares away the investors: the prospect of a default. If Greece defaults, it sends jitters around the Europe and ultimately around the world as part of the Domino-effect. Immediately next in line will be Portugal, Italy, Ireland and Spain (Called as PIIGS when Greece is included).

Euro-Zone leaders have also made it clear that a similar Bail-Out package won’t be sanctioned for other countries on the brink of similar crises. The figures have been anticipated at around a Trillion Euros for bailing-out PIIGS and the notion of it fends-off the European leaders from even discerning about it.

Moreover, stiff conditions imposed on Greece by the Euro-Zone and the IMF (which ropes the bail-out with a humble Euro 30 billion out of the 110 agreed), that involves severe austerity measures that have to be adopted by Greece including public spending cuts, raising VAT to around 22-23 % and much more (and that is the cause of resentment among Greeks) ensures that no other country in future gets on a repetition pattern like this one.

Things can work out for Greece but we still can’t tell whether the PIIGS can fly.

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