In May this year, Euro fell a great fall due to the sovereign debt crisis being faced by the various member of the European Union. Many have been warning of a potential collapse in the EuroZone and for several months after euro bottomed at the beginning of June.
This week, the euro debt probem again surfaced in the news and this time. After having been bailed out four months ago with a huge tranch of 110 billion- euro ($140 billion), Greece is still keeping secrets from the other EU nations. They have not been able to disclose the full details of its financial transactions which it uses to hide its money problems.
Greece like many other nations over extended their loans and Greece’s debt was 115.1 percent of its total economic output last year. They are in second place with Italy taking first place at 115.8 percent.
EU officials are not too happy with way Greece is behaving in relation to them being up front with their balance sheets. Some have even openly stated that Greece deserves to be punished.
“What the Greeks did was an absolute cardinal sin,” said Ruairi Quinn, former finance minister of Ireland who presided over the 1996 meeting where debt and deficit limits for countries joining the euro were set. “They deserve to be punished for it. I think they have been severely punished for it.” – Bloomberg
Despite of the way Greece is behaving, we of course have heard news of EU countries and banks worldwide buying up Greece Bonds and citing higher yields for doing so. We might never know exactly why anyone would want to invest in junk bonds with the potential for default but what we do know is that Greece needed to be saved as the EU itself is at stake if Greece failed. Not only that, the world would falter into a much deeper recession if Greece is allowed to default and go under.
Greece’s problems come to the fore when Eurostat questioned the country in 2008 with regards to the country using swaps with upfront payments that tend to hide the actual debt being owed. The transaction assumes that the country will have greater economic growth in the future and therefore allows the debt figure to be presented as being lower than it actually is.
Now, Greece is not only suffering from a budget deficit but a “Credibility Deficit”. Eurostat now reports to the Greek Parliament instead of the Finance Ministry. some have even blamed the EU for not intervening even after Eurostat warned of problems regarding Greek data.
In my opinion, if Greece maintains its course and decide not to be honest with its problems, the problem would only turn up again and again and would never be solved. Greece is not showing to the world that they can take control of their situation and until they do, the euro will continue to suffer from weakness and volatility in the currency markets.
Lets be alert and prepare ourselves with more headlines from the EU. If you are a euro trader, be quick and nimble,