Greece Calls For Activation of Loan Package

According to experts at Commerzbank AG the euro may be in for a short bounce after the Greek bailout package is implemented. The risk of the bailout failing is small as a failure could destroy the credibility of the EU and its multi nation currency. Should the EU be slow in implementing the loan package the IMF would still be able to provide loans in a timely manner. Greece has called for the activation of the EU aid package and will need 45 billion euros ($60 billion USD) this year. Greek Prime Minister George Papandreou asked for the implementation of the loan package after rising borrowing costs and investor fears of a default prompted the prime minister to ask for aid. High borrowing costs have undermined the Athens government’s ability to cut the nation’s 300 billion euro deficit. In a live broadcast Papandreou said, “It is a national and imperative need to officially ask our partners in the EU for the activation of the support mechanism we jointly created. The time that was not granted to us by the markets will be given to us by the support of the euro zone.” In recent weeks Greek officials have repeatedly said they would not seek outside help but market pressures forced the Athens government to make the tough decision.

Stock Gains Limited by Greek Concerns

European stocks rallied briefly and the euro gained a modest 0.1% but gains were limited by concerns that the aid package will be a short term solution at best. Investors are also concerned that Greece may have to implement more austerity measures limiting growth in a nation already plagued by high unemployment. On Thursday thousands marched in the streets of Athens demanding that the government not bow to pressure and cut spending further. Austerity measures have included tax hikes and wage and pension cuts. Many analysts fear that Greece’s debt crisis could spread to other EU member states most notably Portugal and Spain. Simon Brown of Prospreads in London stated, “On the one hand it could be perceived a relief that Greece is taking the financial help but it does not address the systemic risk and begs the question as to whether countries like Spain may look for the same rescue package in the near future.”

Austerity Measures Unpopular

The decision to ask for aid was made after a grueling seven hour cabinet meeting and some ministers voiced fears of further austerity measures which are unpopular throughout the country. Ben May of Capital Economics said, “This certainly does not mark the end of the crisis, there’s still much further to go. They’ve still got the medium-term problems of getting their public finances in order, and obviously the issue of competitiveness.”