Greek crisis worsens

Greece's budget deficit is higher than believed, leading the beleaguered country to seek rescue packages immediately. Might that be the first step down a very slippery slope?

Yiorgos Karahalis/Reuters
A worker cleans a column at the main entrance of the Bank of Greece in Athens in this photo taken April 23. Greek Prime Minister George Papandreou asked for the activation of a euro zone and International Monetary Fund aid package on Friday aimed at pulling the country out of a debt crisis. The exorbitantly high cost of refinancing its debt is forcing Greece to try to activate rescue packages immediately.

Eurostat, the European statistics office, recently reported that the Greek budget deficit is even higher than previously believed and, as a result, Greek 10-year bond yields shot up to almost 9 percent. For perspective, that’s nearly three times Germany’s rate.

This new exorbitantly high cost of refinancing Greece’s sovereign debt has forced the Greek government into a corner, and it’s now seeking to immediately activate the EU and the IMF rescue package.

As we’ve discussed before, the Germans are still working out the constitutional details of providing help to Greece. However, at this point, the parties involved at least seem optimistic that the program can get started and bring some sense of stability back to the euro.

According to Associated Press:

“Papandreou, saying market pressure threatened to derail the country’s economy, announced Friday he had asked Finance Minister George Papaconstantinou to make a formal request for the plan’s activation.

“The plan aims to cover Greece’s immediate borrowing needs so it can continue servicing its debt and avoid default. The bailout would have to be reviewed by the European Union executive and the European Central Bank, and needs approval by all 15 of the other governments that use the euro. ‘The moment has come,’ Papandreou said, speaking from the remote Aegean island of Kastelorizo.

“‘It is a national and pressing necessity for us to formally ask our partners for the activation of the support mechanism, which we jointly created in the European Union,’ he said. Papandreou said the markets had not responded positively to Greece’s austerity measures that were designed to pull the country’s disastrous finances into line.

“‘Today, the situation in the markets threatens to deconstruct, not only the sacrifices of the Greek people, but also the smooth course of the economy,’ he said.”

The euro reacted favorably to the announcement and emerged from a 10-month low on the news. Yet, the bailout remains messy and risky. Under the current program even other troubled nations like Spain and Portugal will have to chip in money to support Greece. This is despite the fact that bond yields in both of those countries are rising as well. The rescue package is intended to be the last eurozone bailout, but it could just as easily be the first step down a very slippery slope.

You can visit the Associated Press to read more about how Greece is asking to launch the EU-IMF bailout.

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