Even with the cooling of the flames in the EU and the agreement to
establish austerity in Greece, the bond rating indices don’t seem to fully compromise
with the plan. News last Friday reports the drop in the Moody rating,
going from “C” to “Ca”. This comes only a week after S&P dropped
Greece’s rating to what they call “selective default”. Both of these
rating companies agree that they believe there will be further problems to
pursue Greece, even with approximately 70% of the bonds due to be forgone.
Through this whole debacle, the question that everyone seems to want to know is when the EU is willing to let go and let Greece default. As we have discussed in my economic forecasting course, the avoidance of Greece’s default may just be a way to avoid a total collapse of the European and global economy. By holding off and making sure investors see what is going to happen, there will be more control in the spending within the individual countries surrounding Greece.
Another article brought to the attention of BBC News is the thought of leaving the EU and being able to control their currency. The first point that is made is the devaluation of the currency itself. The biggest problem with Greece has been its inability to control the value of its currency. When the currency is pinned to the standard in all of the Eurozone, whenever problems occur in the country, the easiest way besides devaluation would involve cutting wages, part of austerity. Unfortunately, people aren’t too keen on that idea. At this point in Greece’s economy, there is truly no other choice but cutting wages and government spending.
The article continues to explain the process of creating a new currency. When announced, there would be a grace period in which the currency would have to be produced and put into the system in an orderly fashion. The process may end up catastrophic. I believe by what we have seen already, with riots over austerity, the citizens of Greece won’t be pleased by having new currency that will likely be worth less and less the minute they get their hands on the currency. However, what other choice will Greece have? The enormous amount of pressure that has built up over the past few years could very well be nearing an end, and unfortunately, I can’t imagine the situation ending well.
References:
Through this whole debacle, the question that everyone seems to want to know is when the EU is willing to let go and let Greece default. As we have discussed in my economic forecasting course, the avoidance of Greece’s default may just be a way to avoid a total collapse of the European and global economy. By holding off and making sure investors see what is going to happen, there will be more control in the spending within the individual countries surrounding Greece.
Another article brought to the attention of BBC News is the thought of leaving the EU and being able to control their currency. The first point that is made is the devaluation of the currency itself. The biggest problem with Greece has been its inability to control the value of its currency. When the currency is pinned to the standard in all of the Eurozone, whenever problems occur in the country, the easiest way besides devaluation would involve cutting wages, part of austerity. Unfortunately, people aren’t too keen on that idea. At this point in Greece’s economy, there is truly no other choice but cutting wages and government spending.
The article continues to explain the process of creating a new currency. When announced, there would be a grace period in which the currency would have to be produced and put into the system in an orderly fashion. The process may end up catastrophic. I believe by what we have seen already, with riots over austerity, the citizens of Greece won’t be pleased by having new currency that will likely be worth less and less the minute they get their hands on the currency. However, what other choice will Greece have? The enormous amount of pressure that has built up over the past few years could very well be nearing an end, and unfortunately, I can’t imagine the situation ending well.
References:
- Bowlby, Chris. “What if Greece had to Get a New Currency?”. BBC News. http://www.bbc.co.uk/news/business-16981897
- “Credit Ratings: How Fitch, Moody’s and S&P Rate Each Country”. The Guardian. http://www.guardian.co.uk/news/datablog/2010/apr/30/credit-ratings-country-fitch-moodys-standard
- “Moody’s Warns of Greece Default Despite Debt Deal”. BBC News. http://www.bbc.co.uk/news/business-17238523
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