Time Magazine has stuck its neck out just published its obituary on the Fitch downgrade the Greek Economy,calling it the Next Dubai.Needless to ask I did go and ask our Macro Prof on his views on this,His answer was straight to the Point, 'We see that whenever something like this happens the EU has to 'talk it up' since it has greater consequence to the whole concept of an Integrated Monetary Union'.
He went on to express his confidence with the Present Finance minister Giorgos Papakonstantinou who happens to be his good friend and Junior at School,"He has to bring down the deficit",Prof added.
My doubts based on my current half baked knowledge of Economics & Google Search! is
1) A 3% decrease in Fiscal Deficit under the current environment is the ambitious task for the Greek Finance minister is it Feasible ?
2) The problem is going to be tough not now ,but next year when the current government debt comes for 'roll over',obviously due to the downgrades of the Credit Rating Agencies the cost is going to baloon!
Venkat
PS : Here is a question for the readers of this post how would AS AD look ? the one who posts the correct curve shift on this(will verify with experts!) will get a Gluh Wein!
PPS: My current ambition at the MBA is to complete atleast one paper completely on time! I just hope that this AS AD question turns up in the Exam!
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From an investor's perspective, why should anybody buy Greek govies? There is a serious risk of default here in my opinion and other EU countries will be reluctant to offer help - let's not forget that Greece has cooked the books several times. If the ECB does not change their rules, Greek govies will not be accepted as collateral as of next year. That will put enormous downward pressure on the prices of these bonds. And will make rolling over debt a real challenge for Greece.
ReplyDeleteThe only quick solution I can come up with is a 10% decrease in nominal wages, but how likely is this? I will consider buying Greek govies as soon as they yield more than my favourite ING LT2 perpetuals - these are at least implicitly backed by the Dutch government.