European financial crisis

After the Ecofin meeting, the meeting of Euro finance ministers, in Wroclaw, Poland during the weekend, and after a conference call among Greek officials, the IMF, the European Commission, and the European Central Bank, there is still no decision about the €8 billion that Greece is supposed to receive as the next part of the bailout plan that was agreed on last year.

In the spring of 2010, the EU and IMF agreed on a €110 billion bailout package, which was then followed by a €500 one. However, neither the loans, nor the austerity measures could solve the problem. Greece’s debt is higher than ever: according to Citigroup estimations Greek national debt was at times 167% of the country’s GDP this year.

The U.S. and Europe are pessimistic about the resolution of the Greek debt crisis.

By Monday morning after the Ecofin meeting, European market indexes fell by 3%, the euro declined, and German bonds rose as a result. U.S. stock indexes fell by 2 % as well.

This pessimism comes from the fact that nobody is sure if the €8 billion bailout package will be released in time to help Greece meet the standards it has to in October. Since Greece does not seem to cut back spending as much as it should, it might default, which in turn might bring about a domino effect of countries such as Spain, Italy, and Portugal.

Greece needs a structural reform to recover, but it seems the government and the Greeks are not in favor of that step. Jane Foley, senior currency strategist at Rabobank claimed that if the Greek default gets out of control it might result in other countries going along as well; however, if the default is managed well, the domino effect could be prevented.

Some economists blame the lack of fiscal unity, as the cause for the European crisis, while others say it roots in the excessive borrowing and lending that was going on. However, if the latter is true, how is the bail out plan going to help Greece, and ultimately Europe?

- Adrienn Szlapak