Thursday, May 13, 2010

Greek bailout The Millions in the European Union (part two)

Back to the normal rutinary days followed by a great sunny day... I finally have time to express all the ideas on the objective of the Million Euros in less than 5 years. After taking a short trip to Amsterdam to celebrate their freedom day! and see a couple of friends in there I'm back the news are quite extreme, everything financially speaking circles around Greece and Europe, therefore I have to write a follow up article to my article writen on february 2010.

The follow up has to do with Greece and the final bailout that not so many were expecting including me, I still perceive a bunch of exagerated facts and issues let me explain:

The European finance ministers triggered a record 110 billion euro ($147 billion) bailout for debt-stricken Greece last week after Athens committed itself to years of painful austerity.

After weeks of tough talk and procrastination due to fierce public opposition to handouts for the Greeks, German Chancellor Angela Merkel finally threw her full support behind the EU/IMF package, vowing to fight for parliamentary approval.

Euro zone ministers, meeting in emergency session, approved the three-year package of emergency loans and agreed the first funds would be released in time for Athens to make a big debt repayment to creditors on May 19.

In exchange for by far the largest bailout ever assembled for a country, Prime Minister George Papandreou announced further spending cuts and tax increases totalling 30 billion euros over three years on top of tough measures already taken.

"It is an unprecedented support package for an unprecedented effort by the Greek people," a sombre Papandreou, told a televised cabinet meeting.

Merkel called the programme very ambitious and said she would work to achieve swift parliamentary approval of Berlin's share -- the biggest of any EU state at about 22 billion euros out of 80 billion -- of the rescue loans.

U.S. President Barack Obama told Papandreou on Sunday he welcomes Greece's "ambitious" reform program, the White House said. He also praised the "significant support" from the IMF and Eurozone members.

Euro zone leaders held a special summit on Friday to formally launch the rescue after obtaining parliamentary approval where necessary. International Monetary Fund chief Dominique Strauss-Kahn forecast the IMF board approved its 30 billion euro contribution to the package this week.

Greeks have already taken to the streets to demonstrate against the austerity drive and past governments have backed off from reforms to defuse often violent protests. But Papandreou, a Socialist with a strong personal approval rating, has insisted the country must face the bill for years of drift and graft.

"These sacrifices will give us breathing space and the time we need to make great changes," he said. "I want to tell Greeks very honestly that we have a big trial ahead of us."

The first rescue of a member of the 16-nation euro zone aims to stem a debt crisis that has shaken financial markets, dented confidence in the euro and begun to spread to fellow euro zone weaklings Portugal and Spain. Berlin's hesitancy has fuelled market panic.

The chairman of the Eurogroup of finance ministers, Jean-Claude Juncker, said that at Germany's insistence, all ministers would discuss with their national banking sectors the possibility of voluntary contributions to the aid package.

Some 10 billion euros of the overall amount was earmarked to help stabilise the Greek banking sector if necessary, EU Economic and Monetary Affairs Commissioner Olli Rehn said.

Greece is such a particular case that could not be compared to any other state. Now what really worries me behind all this propaganda is that The euro zone loans will carry an interest rate of about 5 percent -- just half the rate demanded by markets last week to buy Greek debt, but nearly 2 percentage points more than the rate on Germany's benchmark bonds. Here is my main question and concern. How would Grecee be able to pay a loan with a loan?

European Commission and the International Monetary Fund will monitor Greece's progress quarterly and loan disbursements will be tied to those reviews.

Telling angry Greeks to choose between the painful rescue or economic collapse, the government now aims to bring its towering budget deficit back to the EU limit by 2014, two years later than originally promised.

"These measures are tough and unfair," said Stathis Anestis, a spokesman for private sector union GSEE. "They lead workers to misery and the country deeper into recession."

Economists were more positive. "The aid package will help defuse the primary cause of concern for creditors which is the imminent risk of default," said Lena Komileva, head of G7 market economics at Tullett Prebon. But she noted that there was still a question mark over political approval across Europe.

The Greek rescue dwarfs the previous record bailout. South Korea -- a country with a population nearly five times that of Greece -- obtained a $58 billion rescue package from donors including the IMF during the Asian financial crisis in 1997.

Citing a choice "between collapse or salvation", Finance Minister George Papaconstantinou announced a three-year public sector pay freeze, further cuts in civil servants' benefits, higher sales and fuel taxes, an increase in the effective retirement age and reductions in pensions.

Papaconstantinou said the deal would cover a large part of Greek borrowing needs for the next three years. In return Athens promised to slash its budget deficit to the EU limit of three percent of GDP by 2014 from 13.6 percent last year.

Papaconstantinou said Greece's public debt would soar to nearly 150 percent of GDP -- a higher peak than forecast earlier -- but start falling from 2014. Both he and EU and IMF officials insisted there had been no talk of restructuring Greece's debts. It seems that there is some clear lack of specialization concerning finacial issues in this particular case, we basically have to consider some basics on financial matters. Austerity and stop the credit crunch lately the world has seen a bunch of financial bubles and here comes my second questions Why we just don't get it? Stop getting loans that you are not able to pay.

Economists say that if the rescue fails to calm markets, European countries could end up footing a bill of half a trillion euros ($650 billion) to save several other nation. I ask the Economist Who will be able to re pay those bills? why to go that far, instead we should go back to the basics of the market to learn to live between our means stop the credit crunch be environmentaly friendly and make a decent but multiple profit.

It seems to me that the Greek classics are comming back specially with the The Allegory of the Cave, also commonly known as Myth of the Cave, is an used by Plato in his work. The Republic to illustrate "our nature ". (514a) The allegory of the cave is written as a fictional dialogue between Plato's teacher Socrates and Plato's brother Glaucon, at the beginning of Book VII.

Plato imagines a group of people who have lived chained in a cave all of their lives, facing a blank wall. The people watch shadows projected on the wall by things passing in front of a fire behind them, and begin to ascribe forms to these shadows. According to Plato, the shadows are as close as the prisoners get to seeing reality. He then explains how the philosopher is like a prisoner who is freed from the cave and comes to understand that the shadows on the wall are not constitutive of reality at all, as he can perceive the true form of reality rather than the mere shadows seen by the prisoners.

So it seems to me that maybe we should see what is going on behind the shadows, having in mind the following:

-Grecee is not the whole of Europe
-Greeks must be ready for long sacrifice
Athens promises extra 30 bln euros in cuts over 3 years
-The bailout will have to be paid (with interest)
In the past the USA approved 100 billion loan to IMF.
-Learn from the past and stay out of debt!

Final comment: Any heart weak investor should go out off the stock market immediatelly, others like me will stay inn strong waitting for the great oportunities to come, last month Nokia was around 11.30€ a share after all this news it came down to 8.40€ a perfect time to buy don't you think?

Keep your mails and comments coming and let's make it happen!

Here you have two different points of view:

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