Feature

Issue of the week: Shockwaves from Greece’s meltdown

The European Union and the International Monetary Fund offered a $147 billion loan package to Greece, but it may be too late to tame the fear that has engulfed the markets.

Greece finally got its bailout, said Charles Forelle in The Wall Street Journal, but it might be too little, too late. With Greece lurching toward insolvency, the European Union and the International Monetary Fund this week came through with a $147 billion loan package. That “will solve one pressing problem”: Greece will be able to repay an $11 billion bond that comes due next week. But over the longer term, Greece will need to tap the public markets for an estimated $196 billion to fund its budget deficit and repay the massive debt it has been accumulating for years. And there’s no assurance that investors will play along. Many worry that Greek voters will reject the $39 billion in budget and service cuts that the Greek government promised in exchange for the bailout. There is every reason to be skeptical, said David Ignatius in The Washington Post. Greece has spent decades in a “financial never-land,” turning a blind eye to widespread corruption and tax evasion. It doesn’t seem plausible that the “freewheeling, boisterous” Greeks will suddenly adopt the “more uptight, less spendthrift ways” of northern Europe.

Investors’ worries aren’t confined to Greece, said Dan Bilefsky and David Jolly in The New York Times. Markets throughout Europe plunged this week on fears that Spain, which suffers from its own soaring deficit and an unemployment rate of 20 percent, “might also require a Greek-style bailout.” Clearly, Europe’s debt crisis is far from over, said Investor’s Business Daily in an editorial. “Virtually every country in the EU spends more than it takes in, and has made long-term fiscal promises to its aging workforce that it can’t keep.”

The Greek bailout, in fact, could further undermine Europe’s finances, by weakening the resolve of other European countries to exercise fiscal discipline, said John Tamny in RealClearMarkets.com. Greece has a long history of flouting the budgetary rules imposed on the countries of the Euro bloc, and for its defiance, it was rewarded with a bailout. So why would Spain, say, impose unpopular austerity measures, when it can just keep spending and wait for a bailout? “Thanks to the unnecessary bailout of Greece, profligate governments renowned for waste will continue to destroy limited capital,” while private companies scramble for funds.

The euro is sliding along with confidence in Europe’s fiscal discipline, said Paul LaMonica in CNNmoney.com. So far this year, the currency has lost about 8 percent of its value against the dollar, and the announcement of the Greek bailout didn’t arrest its plunge. It’s plain that “investors think that the Greek bailout doesn’t completely end Europe’s debt woes.” If Spain can’t quickly eliminate its own debt problems, the euro could be in for further battering.

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