Greece’s Deficit Worse Than Previously Thought
The euro fell to its lowest in almost a year after EU officials said that Greece’s deficit is much worse than previously thought. Adding to Greece’s woes was another downgrade by Moody’s. Most economists expect Greece to trigger the aid package soon. The yield for 10 year Greek bonds is now almost triple the rate for German bunds. Moody’s downgraded Greece from A2 to A3. Win Thin of Brown Brothers Harriman & Co stated, “The only surprise is that Moody’s didn’t cut more. It’s quite absurd given where we are in terms of debt numbers and the cost of borrowing. The euro’s heavy, and people are selling into rallies.” The euro fell for the sixth day and lost 0.6% vs. the US dollar trading at $1.3316. So far this year the euro has fallen 7.1% against the dollar on concerns that Greece’s debt crisis will spread to other EU nations. The EU raised its estimate for Greece’s deficit to 13.6% of GDP. Greek leaders are meeting with EU officials to discuss the aid package.
Greek Accounting Practices Questioned
Greece’s mounting deficit and questions about accounting practices and the accuracy of the nation’s economic data have undermined the EU’s budget regulations and have contributed to the euro’s slide in currency markets. Sylvain Broyer of Natixis in Frankfurt stated, “They have played against the rules and now they’re getting the bill. It’s a very uncomfortable situation for the Greek government. Greece has very much benefited from the currency region, but ignored the rules.” On Wednesday officials from Prime Minister George Papandreou’s government met with EU officials to clarify the proposed loan mechanism. In May the Athens government faces 8.5 billion euros of maturing bonds lending urgency to the ongoing talks. Today Papandreou stated, “I want to reiterate one more time that all we announced and that is included in the growth and stability pact must be implemented without even one day of deviation from the timeframe we have set for each decision.”
Moody’s Downgrades Greece–Again
The news of the Moody’s downgrade triggered a decline in Greek asset prices and increases the pressure for the Athens government to trigger the emergency loan mechanism established earlier this month. Recent austerity measures have triggered social unrest in the debt ridden socialist nation. About 10,000 students and government workers marched to parliament and demanded that the government resist pressure to implement more spending cuts. Greek and EU officials may back away from a previously announced target for Greece to cut its deficit to 8.7% of GDP this year. Financial markets have been hard hit by the revised figures. Giada Gian of Citigroup said, “What concerns me is the general uncertainty about the Greek official figures. This affects market perception about Greece …that one can’t rely on the Greek statistics and that the deficit is revised up and up and up.”
Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.
