Whilst the moves made by the European Central Bank (ECB) to ensure that sovereign borrowing costs stay reasonable and the green light from the German constitutional court for the nation’s support of the European Stability Mechanism and closer fiscal union within the Eurozone have pushed the Euro and stock markets higher, downside risks are still very real.
The sovereign debt crisis was sparked by a loss of investor confidence in Greece’s ability to honour its obligations. Ultimately, of course, this lead to two bailout packages from the EU/IMF for Greece with significant strings attached which were designed to put the nation back on the economic straight and narrow. These measures required very significant austerity cuts which have hit the people of Greece very hard. In the spring, the people made their displeasure with the politicians known when the nation flirted with the election of a left-wing government which promised to tear-up the bailout accords which would almost certainly have triggered a deeper Euro crisis and a Greek exit from the bloc. In the end, a centrist coalition took power and promised the Greek people that they would try to negotiate easier terms for the bailout with their partners.
The Greeks receive bailout money in tranches and each is dependent on the blessing of an EU/IMF/ECB troika of officials which determines if Greece is making adequate progress towards its agreed targets. A decision should have been taken in September over release of the next tranche, but this has been postponed until next month.
Greece’s PM, Antonis Samaras, reiterated his view that a Greek exit from the Euro would be catastrophic for the country, in an interview with the Washington Post. He renewed calls that Greece should be granted more time to meet its obligations which could mean that austerity measures could be relaxed somewhat. Since a further chapter of the Euro crisis is in nobody’s interest as it would set back recovery within Europe, it is likely that some form of accommodation will be found.