EU/IMF Aid Nears as Greek Debt Downgraded

Many analysts feel that a bailout is only temporary as Greece’s fiscal problems run deep.
EU/IMF Aid Nears as Greek Debt Downgraded
Protesters carry a cardboard-made coffin with an Euro symbol on it in Athens last month. (Louisa Gouliamaki/AFP/Getty Images)
4/11/2010
Updated:
10/1/2015
<a><img src="https://www.theepochtimes.com/assets/uploads/2015/09/euro_protest.jpg" alt="Protesters carry a cardboard-made coffin with an Euro symbol on it in Athens last month. (Louisa Gouliamaki/AFP/Getty Images)" title="Protesters carry a cardboard-made coffin with an Euro symbol on it in Athens last month. (Louisa Gouliamaki/AFP/Getty Images)" width="320" class="size-medium wp-image-1821212"/></a>
Protesters carry a cardboard-made coffin with an Euro symbol on it in Athens last month. (Louisa Gouliamaki/AFP/Getty Images)

The euro appreciated on Friday trading as news that European Union officials have reached an agreement in principle for an aid plan for Greece, the EU nation currently in fiscal crisis.

According to Medley Global Advisors, a macro-economic advisory firm, a joint EU-International Monetary Fund (IMF) plan was in place, sending the euro 1.1 percent higher last Friday.

The news tempers the uncertainty that Greece may not be able to make its debt repayments this month and next month, as a bailout is all but imminent.

On Sunday, Greek Prime Minister George Papandreou said in an interview with Greek daily To Vima that the country will lean on a bailout as a last resort.

Earlier, Fitch Ratings cut the credit rating of Greek debt to the lowest level among investment grade, from BBB+ to BBB-, underscoring the uncertainty surrounding the Greek government’s ability to stabilize its finances. Its outlook remains negative.

A rating of BBB- is only one notch above “junk”-status.

“The sharp rise in interest rates faced by the government this year, in combination with a deterioration in the outlook for economic growth, will make it harder for the government to achieve its fiscal targets of reducing the deficit to 8.7% of GDP this year and ensuring that public debt peaks at just over 120% of GDP in 2010 and 2011,” Fitch said in a notice.

EU leaders have repeatedly stressed that if needed, their countries would step in and help. Italian Prime Minister Silvio Berlusconi and French President Nicolas Sarkozy, as well as EU President Herman Van Rompuy have all told European media that they are ready to assist.

Few details have emerged so far, as specifics over interest rates, duration, and political requirements still are yet to be hammered out.

Deep fiscal problems

But many analysts feel that a bailout is only temporary as Greece’s fiscal problems run deep. It remains to be seen if Athens has the political cohesion to stick to its fiscal budget cuts.

So far, however, street riots in Greece have failed to derail deep budget cuts the government hopes to achieve to bring its finances in balance.

Greece’s high debt load is also alarming. Currently, the country’s debt is more than 110 percent of its total annual economic output.