Dark clouds appear again in Europe

Jan 30, 2010, 7:10 PM |

There are strong indications that the investors in the debt markets think Greece is in trouble. Even Italy is in danger.

The recent experiences in the European markets where Greece’s bonds are traded, the general view is that Greece is fast becoming unable to pay its public debt. Yesterday, in all world markets the general view was that Greece would cause a "domino effect". If the European Union continued with its decision not to provide assistance and decide to consolidate the government’s debt (suspension of term payment), it is considered that especially Portugal and Ireland would definitely follow. Under these circumstances, it is claimed that smaller European countries may abandon the monetary system as they would not be able to borrow in Euro currency. Even Spain and Italy with high percentage of debts may be susceptible to the domino effect.

It is feared that the reason behind Euro loosing 3.5 per cent on a monthly basis in December and January against US dollar, is that EU is unable to cope with the problems created by European countries exhibiting weaknesses. Despite its currency losing value and being a net exporter, the recovery of EU economy lags considerably behind USA and the Far East .

It was taught that earlier this week Greece approached China to buy bonds worth €25 Billion but this has not eventuated. Greece's budget deficit is four times the EU standards due to excessive borrowing and high interest payments.

Rescue will be costly for Greece
The commentators pointed out that if it is decided that the Euro is under immediate threat, the rescue of Greece may be imperative, under these circumstances a debt payment system may be in the agenda, similar to one in the Ottoman times. In this case, in order to repay the rescue package, the Greek economy as a whole will be restructured, all workers’ rights will be trimmed, wages will be frozen and taxes will be increased. It is possible that the PASOK government and the EU Commission may put in place a “deep crisis” initiative before the rescue operation to diminish the effectiveness of the left opposition lead by KKE. There are suggestions that PASOK would let the issue to continue to burn with a view to leave the government. In the meantime, recalcitrant Prime Minister, Papandreou has continued with the discourse, "They are trying to sink Greece with rumours", in recent weeks.

Turkey, is exposed to the effect of short-term funds
The interest rates of reserve currencies are at zero or near zero level because of the monetary interventions for the world crisis and the bank rescue operations.

This abundance of money causes the funds to change location quickly from one region to another as funds are frightened and flee under the effects of attractive success stories. Indeed, as it happened after the crisis in Dubai, the Southern and Eastern European countries moved a part of speculative foreign funds to Turkey in the short term, convinced by the "new Turkey" stories after the recent turmoil originated in Greece.

As the expectations of more medium and long-term investors cease and the investment vehicles move to weaker and speculative hands, the experts state that this will cause turmoil in the coming months and could probably increase the size of turmoil. The stock prices on the Istanbul stock exchange increased by 2.5 times from the second quarter of this year and has not recorded any reduction while China and Europe's poorer regions experienced drops up to 20 per cent in January. The bond prices have fallen from 25 per cent to 8 per cent during last year, has remained at 9.5 per cent in the last five months. The Euro also fell against Turkish Lira as much as eight per cent in the last two months.

Meanwhile, the Foreign Minister, Davutoğlu stated in Greece that the relations between the two countries will develop rapidly by all measures and Tayyip Erdoğan will visit Athens as soon as practicable.

Greece, and Portugal are amongst countries in the world where the radical left opposition and communists are the most powerful political forces, it is expected that this issue will be placed in the agenda of the world left movement in the coming days.

(soL - Economy)