03.02.2010

Mounting fears over Greece's ability to pay off its debts have continued tohit the financial markets. However Greek Prime Minister George Papandreou hasrepeatedly denied speculation that it will have to be bailed out and theEuropean Union (EU) has also said there was no chance of Greece defaulting orleaving the eurozone.

Monetary Affairs Commissioner Joaquin Almunia has also stated that there isno bailout problem and that Greece will not default, furthermore stating that inthe euro area, default does not exist.” Greece's public debt stands at about300bn euros (USD419bn). The EU, Spain and Germany have also denied that Greececould be kicked out of the eurozone. Greece, Spain, Portugal, Ireland and Italytogether account for 40% of the eurozone's debt. Their debt has ballooned astheir countries have been battered by the financial crisis, while largereconomies have had to spend huge amounts to bail out their key industries.

EU finance ministers are set in February to approve Greece’s Januaryproposal to cut spending and raise revenue by about 10 billion euros (USD14billion) this year as part of a three-year plan adopted to bring the deficitwithin the EU limit of 3 percent of gross domestic product in 2012. The planaims to narrow the shortfall from 12.7 percent of output, more than four timesthe EU limit, to 8.7 percent this year. That reduction will be achieved eventhough the economy will most likely contract by 0.3 percent. The deficit willshrink a further 5.6 percent next year and 2.8 percent in 2012.

As the implementation of the package begins, and as Greece gets the greenlight from the commission, as it may happen in February, it is considered thatspreads will tighten and confidence will return. Yet many believe that Greecewill struggle to pass its budget which proposes drastic cuts and huge publicsector lay-offs. There were riots last year, and huge national strikes arealready scheduled for the coming months.

Though at this time imminent default or removal from the eurozone will notoccur and with the austerity measures proposed in place Greece should climb itsway back to stability along with its eurozone partners.