Wednesday, March 24, 2010

More Euro-Zone Problems: Who's Next?

Yesterday, we discussed the acute and growing problems in Greece (http://markostake.blogspot.com/2010/03/greek-crisis-threatening-global.html).  Sadly, the problems in the Euro-Zone are showing signs of spreading. 

Portugal's sovereign debt was just downgraded.  Sentiment soured towards the Euro after rating agency Fitch downgraded Portugal’s credit rating to AA- from AA.  Fitch cited “significant budgetary underperformance in 2009” and “structural weaknesses”.

Ahead of the announcement, the Euro was already under pressure as hopes faded that this week’s two-day European Union summit, which starts on Thursday, would result in a concrete pledge of financial support for Greece.

Germany said for the first time, that it would consider financial support for Greece, but pegged its support to 3 conditions.  First:  Greece would have to explore any alternative options to attempt to gain access to the credit markets.  Second:  the International Monetary Fund must be a significant participant to the rescue, and Third:  any potential aid package must be accompanied by additional means of verifying strict compliance.

The growing uncertainty has raised speculation of a temporary Greek exit from the euro-zone to address the currency issue, which would put further pressure on the single currency.

In Great Britain, banks were told to expect “payback time”, as Alistair Darling, Chancellor of the Exchequer, put the finishing touches to a budget that intends to propose new bank taxes and force them to improve the way they deal with customers and small businesses.

The Chancellor’s pre-election budget on Wednesday will employ tactics to force the banks to repay society for the damage inflicted on the economy over the past two years.  Lord Myners, City Minister, set the tone on Tuesday when he said: “The taxpayer rescued the banking system 18 months ago.  The time now is for payback.”

Treasury officials say they no longer “trust the banks as much” to deliver on promises to voluntarily improve their level of service and that the budget marks an attempt by Mr Darling to treat them more like a utility.

He is expected to announce measures to improve service to small enterprises, amid a myriad of complaints about both the onerous rate of charges and difficulties in obtaining credit.  Business organizations are confident the budget will include a mechanism allowing entrepreneurs to challenge adverse lending decisions, or rises in interest rates.

The inter-connectivity of the global financial system makes dealing with individual country's interests quite problematic, as the result of the spill-over into other countries.  The most frightening aspect of the situation, BY FAR, is that the number of problem countries grows as the proportion of "healthy" countries countinues to shrink.

Marko's Take

Please visit us on YouTube at http://www.youtube.com/markostaketv.  We will have our next episode on the legality of the Personal Income Tax posted within the next several days.

1 comment:

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