Update on the situation in Greece, from John Birchall
The possibility of a ‘contagion affect’ (1) is beginning to make international money markets wobble.
Could the graphic problems of Athens spill over into other financial markets and possibly affect regional trade?
The EBRD (2) has announced that three possible contagion problems. These are:
1. If Greece's difficulties spill over into the rest of the European Union, countries in south east Europe could see their exports to these key markets suffer.
2. Concerns about economic stability could frighten investors who might then become reluctant to invest in the region, given the relatively greater risks involved.
3. If Greek banks run into difficulty, it could cause a credit crunch in neighbouring countries, notably Bulgaria, Romania and Serbia, where their subsidiaries are active and important players in the financial markets.
The markets are also concerned and recently they downgraded Portugal's credit worthiness and earlier this week the prime minister of Spain, Luis Rodriguez Zapatero, was forced to deny rumours that Spain would be next to seek financial assistance – though today his government has just announced that Spain's economy emerged from recession after growing by 0.1% in the first three months of 2010, the country's central bank has said. The growth ended six successive quarters of contraction. Earlier this week, official figures showed Spain's jobless rate had hit 20% for the first time in nearly 13 years. Earlier this week, credit ratings agency Standard & Poor's downgraded Spanish government debt over fears for the country's economic outlook. The Spanish economy shrank by 3.6% in 2009.
But back to Greece
Its government owes about 300bn Euros ($400bn; £260bn) and has to pay off part of it this month. This should now be met - the European Union and International Monetary Fund (IMF) announced a bail-out package on 2 May - the biggest in recent history.
They are offering 110bn Euros (£95bn; $146.2bn) spread over three years - but on condition that Greece slashes public spending and boosts tax revenue
Those with Greek debt are losing are seeing their investments fall - in France, Societe Generale was the biggest faller, losing 7% of its share price after admitting a 3bn euro ($3.8bn; £2.6bn) exposure to Greek government debt. BNP Paribas also said it had invested 5bn Euros in Greece. In Germany, Allianz shares fell 6.5%, while Barclays was the biggest faller on the London's FSTE-100 with a 6.5% drop.
Despite our inconclusive election result the UK seems to be OK – for now. Rating agency Moody's says the unclear result from Britain's general election "does not directly threaten" our top-level Triple A rating.
1. A word dating back to 14th Century English, contagion is derived from the Latin word contagio, from contingere, meaning to have contact with or pollute
2. The European Bank of Re-Construction and Development - http://www.ebrd.com
3. Other resources - http://en.wordpress.com/tag/greek-financial-crisis - good blog to follow, http://www.huffingtonpost.com/2010/05/06/greek-financial-crisis-it_n_565614.html - the ‘infamous Huffington Post – always worth a read. http://uk.finance.yahoo.com/news/greek-financial-crisis-the-latest-tele-99311bc46372.html?x=0
4. Some pictures - http://edition.cnn.com/2010/BUSINESS/02/10/greek.debt.qanda/index.html - well written analysis with news footage