Greek debt crisis: Bailout likely, but will it be enough?
The Greek debt crisis continued to roil European debt markets on Wednesday after a leading rating agency cut the country's debt status to junk. While short term aid to Greece is a near certainty, economists warn that more international cash – and painful political steps in Athens – will be needed.
Azerbaijan, Colombia, Egypt, and... Greece. This week, the Hellenic Republic joined a rather unfortunate club of countries whose bonds are rated "junk" by Standard & Poor's, setting off a flight from Greek debt and emergency meetings across Europe to arrange a bailout.Skip to next paragraph
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The euro fell to a 12-month low against the dollar Wednesday. The risk premium to hold Spanish debt – the price investors demand over much safer German debt – rose to more than 1 percentage point. Investors are now demanding more than 11 percent return to hold Greek 10-year bonds, compared with a little more than 3 percent for the German 10-year, the European benchmark.
Politicians in Europe and bankers at the International Monetary Fund (IMF) have been scrambling to secure a bailout package for Greece, particularly since there are growing fears of "contagion" – the financial woes of Greece spreading to financially weak neighbors like Portugal.
Time is short because the country has about $11 billion in debt coming due in May. The current yield on its debt effectively prices Greece out of the private market. That leaves aid from the IMF or other governments the only course of action. But how much money will Greece need? The number appears to be rising ever higher.
Earlier this week, European leaders and the IMF were mooting a €45 billion ($60 billion) bailout. On Monday, economists Piero Ghezzi and Chrstian Keller at Barclays Capital argued in a research note that €45 billion would tide Greece over for only about a year, and that Greece needs at least €90 billion, coupled with tough austerity measures at home.
On Wednesday, IMF boss Dominique Strauss-Kahn told German lawmakers in a closed meeting that the Greek bailout will need to be between €100 billion to €120 billion, according to the Wall Street Journal, which cited MP Jürgen Trittin for the information.