Posts tagged european

Analysis of Greek Economy in Debt Crisis

Probability of  Countries Being Unable to Pay Back Debt

BBC News: Article 1

BBC News: Article 2

European Commission has announced that Greek economy would shrink by 3% this year due to its high risk of defaulting.

As illustrated in the graph, Greek’s probability of defaulting has passed 50% and is heading for 60%. At this rate, Greece will most definitely default if there are no strict cut-offs on government spending and European countries to aid Greece.

Other countries in Eurozone fear for Greek’s economic crisis might affect Eurozone severely. As a result of Greece’s high CDS, it is badly affecting Euro.

“The euro hit its lowest level against the dollar in more than a year, at $1.2887, and was also down against the pound, with one pound worth 1.1706 euros.”

EU economic and monetary affairs commissioner Olli Rehn describes Greek economic crisis as a “bush fire” and that “it must be contained” in order to prevent it to become a “forest fire” putting Eurozone at risk also.

Accordingly, EU and IMF has promised immediate aid and bail-out package for Greece’s debt crisis. However, there are many doubts about how the bailout package could help the Greek crisis.

“The problem is no one has a clear idea of how we’re going to get out of this situation,” said Julian Callow, chief Europe economist at Barclays Capital.

What will happen if Greece defaults? Last post, I have explained about the consequences of defaulting. First, the Greek currency and possibly Euro will experience hyperinflation and it will be a no better than a piece of toilet paper. Second, as the currency Euro is affected, this will affect the taxpayers in the Eurozone, forcing them to carry the some parts of Greek burden. If this is sever enough, it could mean the dissembling of the Eurozone.

So, what are the actions Greece is taking to fight this problem? Well, first is that they have asked help from EU and IMF, which helped them pay their short-run bills. Secondly, they have announced to cut their governmental spending from more than 10% to 3% by 2012.

It was a wise choice to ask for a bailout package, however, if Greece fails to recover from this debt crisis, it means that they’ve just added another debt to their already unbearable- debt list.

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Iceland Volcano Ash Disruption

BBC News: News Article 1, News Article 2

According to BBC News, shares in major European airlines have fallen as most UK flights remain grounded for a second day because of the volcanic ash in the atmosphere.

British Airways shares dropped down by 1.1% with many investors concerned about the loss from the stoppage. Meanwhile Germany’s Airline Lufthansa was down by 2.1% and Air France-KLM shares fell by 1.7%.

“For a large network carrier like BA or Lufthansa your talking about £10m a day – but that’s of limited commercial significance” said Douglas McNeill, transport analyst, Charles Stanley Securities.

While most of the airline industries are affected by this natural disaster, other industry such as pharmacy is suffering from the disaster also. Most of the drug exports/imports are heavily reliant on air freights. If this cancellation prolongs for over a week, it will definitely affect both airline and pharmacy industries severely.

Iceland volcano eruption stirred some health concerns, especially respiratory problems. World Health Organization said that it is not sure if this will cause serious health problems, however, it has advised people to stay indoors to avoid respiratory problems. It is also reported that there are some level of sulphur dioxide in the ash.

In sum, this volcanic eruption has caused several economic problem to health problems. If this prolong for over a week, European economies, including UK, will have difficulty due to canceled air flights.

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