Tuesday, 21 June 2011

The Greek Tragedy

The Greek government employs 1/3 of the population. It has the highest budget deficit in the EU. In monetary terms it spends approx. $45Billion per annum more than it raises in taxes, and it's debt mountain stands at about $544 billion.  A new loan package of a further circa 120 billion euro over three years is currently being considered by the IMF. So not surprisingly any additional loans come with very strong caveats. On 13 June 2011, Standard and Poors lowered the Greek sovereign debt credit rating to "CCC', which means: vulnerable, dependent on current economic situation!

If the outstanding debt is restructured delaying repayment further the credit agencies will rate the Greek government bonds as Junk, which means that the lenders are not expected to get anything like the face value back.  It's all very well getting a loan but the debt problem has not gone away, the deficit has not gone away and in fact the problem has now been compounded with high interest payments.  

The next few weeks will be critical to the future of the eurozone.  Here are some potential consequences of the a Greek sovereign debt default.  The so called PIIGS (Portugal, Ireland, Italy, Greece, Spain) will struggle to raise any additional funding at favourable rates. A number of banks including the bank of Cypress could go bust, "flag of convenience" shipping and holidaying in Greece could become much cheaper. 

But here is the billion dollar question "why are the eurozone heavy weights like Germany and France not throwing themselves behind more loans to Greece at more favourable rates?"  Could it be that the eurozone has reached the tipping point, and it is now better for the eurozone if Greece just slipped away?  Ask yourself the question how long could you run a business in deficit?  The key to surviving the global credit crunch is to look for cash in your Business, find it, handle it well and look for the golden opportunities it creates.  Finding Cash in Your Business

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