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The EU agrees to aid Greece

March 29, 2010

Last week, the EU reached an agreement to bailout Greece.  The 16 members of the Eurozone and the International Monetary Fund (IMF) would create a fund of up to €22 billion ($29 billion) to be used to cover Greece’s finances this year if Greece is unable to sell its bonds on the international market.  Greece is expected to need up borrow up to €54 billion ($72 billion) this year, and its first test has already begun, as Greece announced today that it would start selling more government bonds.  Given that Greece is already paying 6% interest on its bonds (which is twice as high as Germany), this sale will be a test of investor confidence in Greece and the euro.

The rescue package was a major compromise for the two leading Eurozone economies—France and Germany.  Many in Germany felt that they should not have to cover Greece’s spending habits and instead let the IMF help Greece.  However, French President Nicolas Sarkozy wanted a “European” solution to the problem.  However, French domestic politics were also in play, as the head of the IMF, Dominique Strauss-Kahn, also happens to be a French Socialist who could pose a challenge to Sarkozy.  In the end, it was agreed that the IMF might provide up to one-third of the €22 billion rescue package.

Showing that the euro does not even have the full confidence of the French, the BBC also ran a story today about how stores in a French town still accept French Francs—10 years after France adopted the euro.  Apparently, Francs can be exchanged for euros until 2012, allowing some people to not quiet yet give up the cherished national currency.   While using Francs at the local store may not affect the euro’s foundation, confidence in the euro is still weak.

One Comment leave one →
  1. eubeyer permalink
    March 30, 2010 8:03 am

    Yesterday the financial markets responded somewhat kindly to Greece, as Greece was able to sell €5 billion ($7.6 billion) in bonds yesterday ( Greece still had to pay a 6% interest rate (as compared to 2.66% for Germany), but it was reported that demand for the bonds was rather weak. While the height of the Greek financial crisis may now be over, but it will still take time for investors to regain confidence in Greek finances.

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