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European aid for Greece tore down the world stock exchanges

08 May 2010 / 11:05:30  GRReporter
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The Heads of State of the eurozone countries endorsed the financial rescue package for the Greek economy. According to it in the next three years European taxpayers will take out of their pockets 80 billion euros to help the government in Athens to deal with their ever-growing foreign debt. The first part of 30 billion will be available within 2010. The first tranche of this amount in cooperation with the International Monetary Fund should arrive in the Greek treasury by May 19th when expires the the maturity of a part of the Greek government bonds and the country has to pay its creditors. The decision of the Heads of State of the eurozone was expected since last Sunday the finance ministers had agreed about the parameters of the agreement.

    The decision taken in Brussels, however, had a negative effect on world stock markets, which ended with decreased indices. Among the investors continue to be rampant the fears that Greece will not be able to cope with the financial stabilization program and find Athens to be a source of social, political and financial instability. The fear that the Greek crisis will extend to other countries has led to huge losses on Wall Street and on the Asian stock markets, which were also followed by the European markets. The index of the London Stock Exchange closed with a 14-months record, by registering a loss of 2.62 per cent. In Paris, the index lost 4.60 per cent of its value, while in Frankfurt - 3.27 per cent of its value. The Athens Stock Exchange also did not make an exception, which index registered a loss for the entire week of 12.81 percent and on Friday afternoon it closed down at 1630.47 points.

    "Greece can not cause such damage to the global economy as the bankruptcy of Lehman Brothers, but its problems are much larger than the European leaders want to present them," said Nobel laureate Paul Kryugman in an analysis published in the newspaper New York Times. According to world-famous economist and professor at the Princeton University only the rescheduling the foreign debt of Greece will not be enough and will have to be accompanied by the devaluation of its currency. "This however is impossible because the country is part of the eurozone. In this case we have to think about what seemed unthinkable until yesterday - the leaving of Greece from the eurozone", suggests Paul Kryugman.

    However, Nobel laureate assumed that there is a chance to avoid this course of events under the following three conditions: 1) The Greek workers must accept a much more dramatic reduction of their income than what is provided for in the stability program, so that Greece can become more competitive and to be created new job positions, 2) The European Central Bank has to buy a part of foreign debt of the suffering economies in the eurozone and consequently to allow greater inflation, and 3) Berlin has to agree to keep on helping its poorer partners. "From a political perspective all three conditions are impossible to implement. In this case remains the only possible outcome - the exiting of Greece from the eurozone and the depreciation of its currency," says Paul Krueger in conclusion.

    "The rescheduling of the Greek foreign debt is not on the agenda," is said in an official statement of the investment bank Lazard, which from this week formally advises the Greek Government in seeking a way out of the crisis with the foreign debt. After reporting the news Lazard was announced an investment bank of the week, but analysts did not fail to note that its deal with the Greek government might turn out to be “fat job, but also not a spoon for its mouth”. The financial institution has experience in dealing with bankrupt countries and has executed successful projects in countries like Ivory Coast and Gabon in Africa and Ecuador,  and Nicaragua in Latin America and also in Argentina, Morocco and Papua New Guinea. Established in the 70's of the last century the investment bank is experienced in negotiating with creditors and credit rating agencies and with the assessment of capital markets and restructuring of government finances.

    Greece is not an unknown country to Lazard, which was the adviser to the government in the privatization of Olympic Airlines and of the Athens Stock Exchange, as well as in the sale of the shipyard Skaramanga by the German concern ThyssenKrupp to investors from Abu Dhabi. Before becoming adviser to the government for the settlement of the foreign debt, Lazard undertook the privatization of the Greek State Railways DCE whose annual loss is estimated at 900 million euros. The team of Lazard in Greece will be managed by Matthieu Pigasse, executive director of the bank branch in Paris and in its team will also take part Michele Lamarche, leader of the team of international advisers of the bank and Eric Lalo.

    “The falcons of Lazard will not try to hide the problem, as did the former adviser to the Greek government," writes in an article for the Journal Naftemboriki Edward Handas. According to him from long-term perspective the compliance with the financial stabilization program has no alternative. According to him, without the discipline imposed by the common European currency it would be difficult for Greece to deal with the institutional weaknesses of the country - corruption, its strong and groundless unions and the lack of government leadership. The author, however, warns that in the short term plan painful years expect the Greeks. "Having the strikers to try to seize the Parliament building we can certainly say that time is no ally of Greece," says Edward Handas in conclusion.

Tags: economic crisi Paul Kryugman Lazard stock news
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