When you read the latest statement on monetary policy decision of the Reserve Bank of Australia (RBA), you will find that they believe that the Greek sovereign debt crisis is contained for the moment:
The concerns regarding some sovereigns appear to have been contained at this stage.
The language is reminiscent of the start of the sub-prime mortgage problems. Currently, it seems that the global financial markets are shrugging off the possibility of a Greek government debt default, which has a wider implication on the Euro as a currency, which in turn has a wider implication on the global financial markets (see All quiet on the Greek front?).
But dear readers, do not be fooled by this apparent calm. Sure, the concerns looked ?contained? but the problems are still simmering. To let appreciate this situation, look at the following facts:
- Greece has to pay 4% more for their debt than Germany, the most credit-worthy nation. That?s roughly twice the margin from January 2010, at the height of the financial market jitters.
- The most recent attempt by the Greek government to raise money was very undersubscribed.
- Greece needs around ?50 billion in 2010, of which around ?25 billion is needed by June.
- After 2010, the Greek government needs to refinance its debt at 7-12% of its GDP.
- Greece budget deficit currently sits at 12% of GDP and must be financed as well.
- Greek government debt is forecasted to be over 150% of GDP by 2014.
- The current ?bailout? package by the EU and IMF is around ?40-45 billion, which is short of what the Greeks need at ?50-75 billion.
- The ?bailout? package requires:
- ? that Greece must exhaust its ability to borrow from the financial markets first before accessing the package.
- ? unanimous agreement among EU members.
- ? the debt will be provided at market rates, rather than on concessionary terms (although under new proposals full market rates will not be used).
- ? full participation of the IMF, which means the IMF will have a say in the (usually stringent) conditions for the loan.
- ? meet Germany?s condition that the EU framework for future bailouts be changed.
As you can see, the Greek problem is going to be more like a trench warfare than a blitzkrieg. It will probably take years, taking down lots of casualties on the way.
Mind you, Greece is not the only country. There are other countries like Portugal, Ireland, Italy, Spain and UK who are going to face the same problem over the next few years. The question is, while the trench warfare is going on in the Greek front for the next couple of (or few) years, can the global financial markets remain orderly when one or more of the Portuguese, Irish, Italian, Spanish and British fronts are opened simultaneously?
Fingers crossed.
