Will Europe step in to bail out Greece?
European Union leaders gathering for a crucial summit Thursday face tough choices: come to Greece’s rescue with the first ever bail out of a eurozone state or hold back and see if Greek spending cuts and reforms can avert a default.
In the darkest hour yet faced by Europe’s 11-year-old common currency, the sharks of international finance are suddenly circling the euro.
The crisis has come to head as a result of the public debt crisis faced by the Achilles heel of the 16-member eurozone, Greece. Currency speculators are now either betting on a fall in the value of the euro – or waiting for Greece's problems to spread to other states. Traders are already reported to have bet nearly $8 billion against the euro, according to the CME Group, the world's largest futures exchange.
European Union (EU) leaders gathering for a crucial summit Thursday in Brussels face some tough choices: come to Greece’s rescue with the first ever bailout of a eurozone member state or hold back and hope radical spending cuts and reforms unveiled by the Greek government will be enough to avert a default.
Amid rumor and counter rumor Wednesday, observers remained divided on whether the eurozone’s biggest economies would step in to prevent the monetary union from unravelling in the event of Greece having to leave the club.
“The bottom line is that this shows what happens when you put countries with such a variety of economies into one currency union,” says Nigel Hakwins, a senior fellow of the free-market Adam Smith Institute in London. “The likelihood is that the Germans, with assistance from the French, will be prevailed upon to get Greece out of this crisis so that it does not spread to eurozone members like Spain and Portugal,” he says.
Nevertheless, the euro fell against the dollar early Wednesday on expectations that the EU will probably not announce an aid package for debt- stricken Greece but will instead opt for new policy measures and words of solidarity.
Thousands of Greek civil servants also took to the streets Wednesday during a 24-hour strike over a planned wage freeze, testing their government's will to impose stringent spending cuts.
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It goes beyond Greece
The crisis underlines the threat to the long-term health of the euro from its most troubled and indebted economies – the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain).
At 12.7 percent of GDP, the Greek budget deficit is more than four times higher than eurozone rules allow. Currently, it's total debt stands at around $419 billion.