THE GREECE SAGA - That spooked the World Financial Markets!!!!!!!!!!!!!


In the Month of April, 2010, Greece announced that this fiscal’s Deficit Gap of the country will be more than expected. After this announcement, US convinced that the increased Budget Deficit can be very well handled by the Greece Government and it would not affect the other world markets, hence there is nothing to worry about. In the last week of April, 2010, The Euro Stats released that the revised Budget Gap of Greece will be more than 14% of its GDP this year, with the release of this fact, Standard & Poors downgraded Greece from an investment economy to a Junk Economy. Ratings agency Moody's also downgraded Greece's credit rating a notch to A3 from A2.

Greece has pledged to cut its deficit by four percentage points of gross domestic product this year.

Fears of a default by Greece mounted late last year after the newly-elected government sharply revised up its estimate of Greece's 2009 deficit to 12.7% of gross domestic product, more than four times the E.U. limit.

The Greek government surrendered to the credit markets, formally requesting the activation of a joint European Union (EU) and International Monetary Fund (IMF) rescue plan after soaring borrowing costs were seen making it virtually impossible for the debt-strapped nation to meet its funding needs on the open market.

Germany's finance minister, asked officials to prepare a plan in time for a summit of EU leaders on 06 May, 2010. The options include either a loan from EU states or some sort of institutional EU response.

Germany's apparent backing for a bail-out came despite worries that it led to the breakdown of fiscal discipline across the Club Med region. It also raised troubling questions of fairness. Ireland has tackled its own crisis by slashing wages and going far beyond any measure so far offered by Greece, yet Dublin has not received help.

German exposure to the region amounts to €43bn in Greece, €47bn in Portugal, €193bn in Ireland, and €240bn in Spain. German lenders are already vulnerable, with the world's lowest risk-adjusted capital ratios bar Japan.

Wealthy Greek citizens have shifted €7bn from banks in Greece to foreign accounts, fearing that capital controls in Athens. The withdrawals have echoes of the Mexico's Tequila Crisis in 1994 when Mexicans set off a spiral by shifting funds to the US.

The risk is that capital flight will erode the deposit base of Greek banks, forcing them to shrink loan books.
Goldman Sachs has downgraded the National Bank of Greece and GPSB. "Greece faces both a liquidity and, potentially, a solvency problem. While we believe that, individually, Greek banks tend to be well-run, the problems they face are outside their operational control," it said.

Tensions within the euro zone were highlighted by the reports that Sarkozy last week threatened to pull out of the single currency unless the European Union agreed to support Greece.

Finally, on 10th May, 2010, The European Union came out with a bailout package not only for Greece but for whole of the Euro Region of 720 billion Euros, covering Italy, Spain, Portugal and other countries too along with Greece. This announcement was celebrated by whole all around the Globe by posting almost 3 to 10% gains in a day. The French Index (CAC) was almost 10% up on that day. NIFTY also posted an overwhelming gain of 175 points in a day.

The unprecedented €720bn rescue package agreed by European policy makers this week to combat the sovereign-debt crisis threatening the euro was necessary, because if Greece were to "fall down" this could spread to other countries and lead to "a kind of meltdown".

Greece is the first country in 11 years of European monetary union to require a political pledge of support as fears over its debt sparked a market attack that has dented the euro.

Greece has been forced to implement tough austerity measures as a pre-condition for an international bailout, a move that has sparked widespread protests in the southern european country.

Deutsche Bank’s Chief Mr. Ackermann said that “I would doubt that Greece over time will be in a position to come up with the economic potential” to pay back what it owes.

Mr Ackermann believes that Italy and Spain will be "strong enough, to service their debt," limiting the probability of so-called contagion, but added that in the case of Portugal things are more "difficult".

Europe must intensify efforts to turn around Greece's financial situation to avoid a need to restructure its debt, since this would impact German banks.

German financial companies including Deutsche Bank and Allianz SE will make available €4.8bn in financing to replace Greek government bonds expiring by May 6, 2013, by purchasing new bonds or providing other forms of financing. They will also replace €3.3bn in expiring credit lines with new ones or other financing.

Despite the turbulence, the eurozone remains stronger than the US or UK. Germany in particular with its strong dependence on exports, could profit from a weaker euro.

Final April consumer price inflation data released on 14th May, 2010, Friday in Spain showed that for the first time in the series of the data, the core inflation rate turned negative to - 0.1% on an annual basis from 0.2% in March.

Headline inflation, which includes food and energy prices, rose from 1.4% to 1.5% on an annual basis.

Spain joins Slovenia, Portugal and Ireland in the number of countries where core prices are falling compared to the previous year.

Greece, Portugal, Ireland and Spain have committed to take steps to cut debt but the first negative Spanish core CPI data reading on record raised the prospect that those measures won't be enough, in turn sparking fresh worries about economic growth.

Spain's core inflation rate turned negative in April, falling 0.1% and sparking worries over potential deflation and stalling growth.

French banks are some of the largest holders of peripheral European government debt and fell sharply on Friday. In one more hit for lenders, New York Attorney General is carrying out an investigation into the role of lenders and credit rating agencies in mortgage-bond deals.

European banks reportedly under investigation include Credit Agricole, Deutsche Bank, Credit Suisse and UBS.

The euro has lost ground against the dollar ever since Greece shocked markets last year by revising up its budget deficit and the euro dropped another 1.2% to $1.2384 against the dollar on Friday, hitting a 17-month low in the session.

Having gone through the above facts, it gets very well clear that the Crisis in Europe is deepening day after day and may become worse as that of US. It will be wrong to say that this crisis would not impact US or any other economy in the world, as it is not a new crisis developed in Europe, in fact it is the part of that Crisis which emerged in US, a part of which was Sub-Prime Crisis and the other one is CDOs Market. It will be apt to say, after witnessing such crisis in the Developed Economies that, TODAY EACH AND EVERY ECONOMY IN THE WORLD TASTES THE BITTERNESS OF GLOBALIZATION.

At the end, I would suggest the traders to trade very cautiously in the markets by maintaining Strict Stop Losses and Booking Nominal Profits and the investors to exit their holdings in profit and avoid making fresh investments at this point of time in the markets.

At the same time, investors and traders should also be prepared for the expected sharp correction in the Markets in the coming couple of weeks.