EU Pressure on Greece

Bad news from Europe continues as the pound continues its decline and Investors remain concerned that Greece’s austerity measures may not be enough. On Wednesday the Greek government is set to announce 4.8 billion euros ($6.5 billion USD) of additional deficit cuts. Greece is under pressure from the EU and investors to add additional austerity measures. New measures include increased taxes on tobacco and alcohol and more cuts in bonus payments to public workers. The bonus cuts are unpopular with public workers who have scheduled a strike for mid March. EU Monetary Affairs Commissioner Olli Rehn told the Athens government it must announce additional measures “in the coming days” to reassure EU official’s fears that current measures fall short of what is necessary to resolve the nation’s fiscal crisis. Greek Prime Minister George Papandreou said in a speech that the cuts will be “painful” and that public workers whose benefits have been cut and their wages frozen “will have to get by on less.” Tax hikes are in the works and Papandreou acknowledged that while raising taxes may stall economic growth the “primary threat is not the recession, but something worse, finding ourselves unable to borrow.”

EU to Aid Greece

The troubled euro rose vs. the US dollar gaining 0.3% trading at $1.3605. News of further Greek budget cuts prompted the Euro’s gains as investors believe that further Greek austerity measures will make aid to Greece more attractive to other EU nations, most notable Germany where opposition to Greek aid is widespread. German officials say that the EU is putting together a plan to grant Greece about 25 billion euros if needed. Many believe that any aid to Greece will be a band aid sort of approach and will not address the nation’s real problems. Jessica Hoversen of MF Global Ltd. in Chicago said, “The bailout is not going to fix the problem. If you propose that Greece implement more austerity measures, you court more social unrest and a further decline in growth. If you don’t, it may allow Greece to skirt fixing the structural problems that put them in this position. These big macro issues are like snow that piles onto the roof until it breaks through.”

Pound Under Pressure

In addition to euro zone troubles the pound has come under pressure due to political uncertainty in the UK.  Recent polls show that the UK may have it’s first minority government since 1974 and will make efforts to reduce the UK’s debt politically difficult. John Doyle of Tempus Consulting said, “The pound is in freefall. There seems to be nothing supporting the pound as political worries build. There’s still some downside to the sterling.”