Greek Debt Continues to be a Factor
Greek woes extended into the new week, forcing U.S. stock prices down lower with them. All three major U.S. stock indices were down around 1 percent early in the trading day on Monday, January 30, 2012.
The permanent debt relief plan for the European Union is still being discussed, but pessimists ruled the market. The governments within the EU are struggling to create jobs and promote growth, but the debt talks that were supposed to originally cover these topics has mostly progressed into how best to bail out the nation of Greece. Restructuring the Greek debt has become a monumental task and it has deservingly commanded the bulk of the EU’s discussion. Still, stocks are dropping because of a lack of “tangible progress.” The main problem is that about 200 billion Euros are owed to Greek bondholders. Under the current situation, no deal has been reached as to how these bondholders will be repaid.
No Greek bailout can be realized until the bondholders’ demands are satisfied. This involves about 130 billion Euros needed by Athens in order to keep their economy functioning. Even though the latter was agreed to back in October, the bond situation needs to be resolved before any other forward progress is made.
The repercussions of this have been felt around the world. Even Spain posted an economic contraction in the last quarter of 2011. This was the first time that this has happened in the last two years. Countries that are otherwise prosperous are suffering because of the Greek problem. Germany has called for a commissar to take control of Greece’s public finances in order to ensure that problems are solved by a third party. The Greek Finance Minister shot this idea down as a matter of national pride. Whether or not this was a good idea remains to be seen. It is clear that Greece is in trouble and perhaps a third party monitoring finances is a necessity. The German proposal has some support from Swiss and Dutch representatives.
While the problem might still be several days or weeks away from being solved, there is quite a bit of hope amongst the European leaders. It is estimated by officials that a solution is only a few days away. If this is the case, international stocks should be getting poised to rebound. It appears that international traders are a bit more skeptical than European financial experts. The longer the amount of time before a solution is arrived at, the more international stocks will suffer.