Greek Debt Figures to be Revised Upward
The Greek tragedy continues as Moody’s downgraded Greece from A2 to A3 and EU officials say Greece’s debt figures may have to be revised upward. After Moody’s cut Greece’s rating US and European equities fell and sparked risk aversion among investors who sought the safety of US Treasuries. Moody’s downgraded Greece’s rating to A3 just four notches above ‘junk’ status and bond spreads hit record levels. The EU’s statistics agency said that last year’s Greek budget deficit was actually 13.6% of GDP and not the 12.7% estimated by the Athens government. The news sent the euro lower for the sixth straight trading session to $1.3260. Mike Lenhoff of Brewin Dolphin stated, “Today it is a Greek story. The market seems to be pricing in some default or restructuring. The Moody’s downgrade is another part of the saga. Each time we have some sort of announcement and get closer to a resolution, there seems to be another stage to overcome.” In mid day trading the Dow Jones Industrial Average fell 78.97 points to 11,045.95 and the Standard & Poor’s 500 Index was down 9.67 points at 1,196.27. The Nasdaq Composite Index also fell 17.98 points, to 2,486.63. In Europe the pan-European FTSEurofirst 300 closed at 1,083.88 points, a decline of 1.1%.
Greece Likely to Seek Aid
Many economists now believe that the only way Greece can finance its debt is to trigger the EU/IMF loan mechanism. Rising bond spreads are making it difficult for Greece to finance its debt in a sustainable manner. Ben May of Capital Economics, said in a client note, “There seems little hope of a significant fall in yields before the markets see cash in Greek hands. The only way Greece stands a chance of refinancing the 8 billion euros or so of debt that matures in mid-May without paying an exorbitant interest rate will be to put the bailout package in motion as soon as possible.” Austrian Finance Minister Josef Proell said that the Athens government is hesitant to accept conditions attached to the aid package and said that “the time for action is now.”
Austerity Measures Causing Social Unrest
In Athens about 10,000 students and government workers marched to parliament demanding that the government resist further spending cuts and austerity measures putting the Papandreou government in a difficult political position. Also adding to investor fears is the possibility that the German government of conservative Angela Merkel will delay the aid package should Greece ask for help.
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