Some EU countries--such as Germany whose bonds continue to be a safe haven for investors, and the UK, whose debts have risen but whose bond yields have remained low and are still considered safe because the Bank of England can choose to step in and back investments should the need arise—have managed to weather the European economic crisis better than others. Unfortunately, many
EU countries, particularly those with shakier economies to begin with, have not fared as well. Cyprus, Greece, Hungary, Ireland, Latvia, Portugal, Romania, and Spain have each participated in some form of assistance, repayment monitoring, or Economic Adjustment Programme with the EU and International Monetary Fund (IMF). Greece, whose economic chal-
lenges predate the 2008-09 meltdown, continues making headlines for coming perilously close to sovereign default—a threat that continues to loom large despite ongoing loans and efforts to create restructuring deals that would enable Greece to receive the additional assistance it needs to retain solvency. Finance Professor Jeff Born at D’Amore McKim School of Business at Northeastern University explained that following the January 2015 elections giving the radical left Syriza party majority control, “the prospect of the Greek government defaulting on its debt rose significantly.” As Syriza campaigned against debt refinancing terms, “Greeks responded to the call to end austerity programs that were among the conditions imposed by lenders for attaining fresh financing,” Born said, adding that “a Greek default may give the new government a shortterm boost in popularity, but the longterm consequences for the Greek economy are likely to be dire. Without an ability to borrow funds, the Greek government would have to balance its budget. The Greek government is running a deficit in excess of €22 billion, which is over 12 percent of the GDP, and this adjustment would have a massively negative impact on the Greek economy.” Germany, who has invested over €56 billion in Greek aid has taken a hardline stance that Greece must comply with strict fiscal reforms before any additional funding will be provided. “These austerity programs have made Germany (and the prior Greek government) unpopular with Greek voters,” Born said. “Ultimately, Greece’s problems are of its own creation—blaming the lenders won’t solve the Greek government deficit, and that is what needs to be addressed.” While the standoff over compliance continues, Greece faces being unable to pay €950 million to the IMF due in May. Repeated pleas for postponement of IMF payments and release of €7.2 billion in additional Eurogroup bailout aid are being met with frustration caused by Greece’s unwillingness to comply with the imposed terms of their restructuring agreement. Both Germany’s finance minister Wolfgang Schäuble and European Central Bank’s president Mario Draghi recently spoke out saying that Greece’s fate was in their own hands. Albeit unpopular, tough reforms THE SUIT MAGAZINE p.7
Published on May 8, 2015
On May 20, The Suit Magazine is set to host the “2015 Investment Outlook Roundtable” in New York City. Dean Baker, co-director of Washington...