Euro Area — Implications of the Sovereign Crisis
19/02/2010
The EU Council suggested there is strong political will to prevent a liquidity crisis in Greece. But it remains unclear if the political support will lead to future financial support for Greece and if the support will be large enough to calm markets. Although we do not expect that we will get clearance on these questions by Tuesday, we are quite confident that the other euro area countries eventually will provide a bail-out for Greece if necessary.
The countries with the largest fiscal problems (Greece, Ireland, Portugal and Spain) also run large current account deficits. And to us, it looks very unlikely that these twin-deficit countries will get substantial support from a tailored fiscal and economic policy by their euro area peers. Without such assistance, we doubt that — even with substantial fiscal tightening — the twin-deficit countries will able to reduce their fiscal deficits to the requested 3%-of-GDP levels in the next 3 to 4 years
19/02/2010
The EU Council suggested there is strong political will to prevent a liquidity crisis in Greece. But it remains unclear if the political support will lead to future financial support for Greece and if the support will be large enough to calm markets. Although we do not expect that we will get clearance on these questions by Tuesday, we are quite confident that the other euro area countries eventually will provide a bail-out for Greece if necessary.
The countries with the largest fiscal problems (Greece, Ireland, Portugal and Spain) also run large current account deficits. And to us, it looks very unlikely that these twin-deficit countries will get substantial support from a tailored fiscal and economic policy by their euro area peers. Without such assistance, we doubt that — even with substantial fiscal tightening — the twin-deficit countries will able to reduce their fiscal deficits to the requested 3%-of-GDP levels in the next 3 to 4 years