Support For Greece’s Austerity Measures
The Greek fiscal crisis has caused investors to lose confidence in euro zone assets and has pummeled the euro in currency markets since January. The EU is now trying to impose discipline on Greece and other weak EU nations. Greek austerity moves have been opposed by public sector employees and unions as generous pension plans are threatened. Greek fiscal troubles have caused social unrest in the country. A series of one day strikes failed to have any affect on the Athens government which is under immense pressure by the EU to cut deficits. Greek opinion polls show support for austerity measures as long as the budget cutting measures are applied equitably. Last year Greece suffered two credit downgrades and rating agencies are not convinced that Greece can fix its debt problem alone. Worse than expected Greek GDP data showed a deepening recession and little prospect for growth in the beleaguered nation.
German Opposition to Any Aid For Greece
The German government of Angela Merkel has expressed fierce opposition to any financial aid to Greece but most experts believe this could change if the financial integrity of the euro zone is threatened. On February 11th EU President Herman Van Rompuy stated, “Euro-area member states will take determined and coordinated action, if needed, to safeguard financial stability in the Euro area as a whole.” German Chancellor Merkel stated, “Greece won’t be left alone, but there are rules that must be adhered to. On this basis we will agree on a statement.” Many experts fear that Greece’s problems could spread to other euro zone nations and affect global markets. A Greek default would hammer the euro in currency markets. Greek President George Papandreou has called for a wage freeze for public sector employees, pension reforms and higher fuel prices all of which are unpopular. In Germany former Bundesbank official Otmar Issing warned, “The viability of the whole framework — nothing less — is at stake. Financial assistance for countries that violated the terms of their participation in EMU would be a major blow for the credibility of the whole framework. Such principles do not allow for compromise. Once Greece is helped, the dam would be broken. The question is whether monetary union can survive.”
Pound Falls on Recovery Concerns
Lately it seems that there has been nothing but bad news for Europe. The pound fell after data showed that the UK’s recovery may lag behind US recovery. The Bank of England said it may be necessary to “provide further monetary stimulus.” Clearly Europe is in serious trouble.
