Serj Panchuk
The current economic situation in Greece is probably the most discussed issue around the world. It wouldn’t be so heavily discussed but for the threat to the entire eurozone, an consequently to the global economic and financial system.
The fear of being infected with the “debt virus” makes other countries and various financial institutions participate in the salvation process though flexible credit lines and endless financial inflows. All this cannot but affect financial markets, making them rather volatile and unpredictable.
Financing Greece: Will the eurozone be saved?
A couple of days ago mass media around the world reported that the Greek government was about to agree on another short-term loan (€2B). The Greek authorities say they need the money to refinance old short-term Greek bonds. In other words, in order to pay off its old debts Greece needs another loan.
According to the West European Association of Traders and Investors under , this is how the mentioned step can be explained:
1. Short-term loans. At first Greece wanted to pay off the old debts at the expense of the multi-billion loan promised by the EU/ECB/IMF trinity of lenders. However, the financial aid is delayed. That is why the Greek authorities are forced to borrow a second expensive loan.
2. Treasury bonds. Previously Greece placed short-term bonds to the amount of €1,625B at 4.56%.
3. The IMF/ECB/EU loan. Why is the loan delayed? It is happening because the joint expert team is still checking if the Greek government is good at reducing the country’s budget deficit and implementing numerous austerity measures. Previously the trinity of lenders was going to provide a €8B loan in September. However, the checking procedure delayed the tranche till mid November. Athens had no choice but to borrow some more short-term loans.
Greek debt: Are there reasons for concern?
In the first 8 months of 2011 Greece accumulated €30B in short-term debts. Some experts say that by late 2011 the figure will have increased by €40B.
In connection to this, ForexTrend analysts note that Greece’s budget deficit keeps growing, not to mention any reduction. During the first 8 month of 2010 the Greek debt increased by 
16,65B and gained 19,16B over the same period of 2011. Even if to consider the 5.3% growth of the country’s treasury up to 
B, the spending has grown by 7%.
Moreover, on Oct 11th the joint commission, which is checking the efficiency of Greece’s spending reduction, published a statement. It says that the Greek recession seems to be more serious than originally thought. The experts say that the Greek economy will start recovering in 2013, not in 2012 as first thought. Moreover, they expect Greece’s income from privatization to be much less considerable. And finally, the Greek government expects the GDP to shrink by 5.5% this year and 2.5% in 2012.
How does Greece influence financial markets?
All the above-mentioned problems make European politicians consider canceling a part of Greece’s sovereign debt. Some experts say, for Germany it would be a better and cheaper solution than providing Greece with further financial support. However, some financial institutions oppose the decision, saying that this is a direct threat to the eurozone.
In July the holders of Greek bonds agreed to lose 21%. Now they do not want to lose 38% more. If that happens, investors will start getting rid of Geek bonds and the bonds issued by other risky eurozone states, which will inevitably affect the eurozone’s economy and currency.
According to the Department of Masterforex-V Trading System , EURUSD keeps rallying in mid-term perspective. The currency pair may encounter resistance around 1.4008. (50% Fibo). There is no point in considering a mid-term reversal until the price breaks below the MF pivot 1,3686, followed by a downward FZR.
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Do you think a new major crisis will break out in late 2011 – early 2012?
Serj Panchuk
