Published: 07 Nov 2011
Last Updated: 06 Nov 2012
As alcoholics are fond of saying: you've got to hit rock bottom before you can start to recover. Which could well be what happened to Greece last night, after prime minister George Papandreou agreed to resign to make way for a new unity government between his left-leaning party and the rival New Democracy party, which will (hopefully) ratify the bailout deal for the country. The peace talks haven't done much to quell markets' concerns, though: the cost of Italian debt has hit a record high, with the yield on 10-year bonds reaching a staggering 6.64%. That suggests investors are becoming increasingly convinced that this quagmire won't just be contained within Greece. Brilliant.
To Greece, then, where Papandreou and his New Demoncracy counterpart, Antonis Samaras will spend the day thrashing out some kind of deal on a unity government (incidentally, the pair were once college room-mates in the US. So at least it's not the first time they've seen each others' dirty underwear). By the end of the day, the EU has decreed, they must have come up with the name of someone to lead the government until an election is called (likely to be in February).
At the moment, the front-runners are Lukas Papademos - a safe pair of hands, given that he was once the deputy head of the European Central Bank, and current finance minister Evangelos Venizelos. Either way, whoever takes the reins will need to ensure that the terms of the Greek bailout deal agreed by EU ministers a couple of weeks ago are ratified, giving the country an extra €130bn (£111bn) and creating a 50% write-down on Greek debt.
The difficulty is that although the much-maligned referendum has now been called off, there's still no guarantee that a unity government will ratify the rescue package. In part because the eurozone ministers who agreed to it have yet to release the nitty-gritty of its conditions - ie. just how stringent the austerity measures it wants Greece to introduce are. The country's in a desperate position, though: the cash reserves it needs to pay wages and pensions will have dropped below the required €1.5bn by the middle of this month. Unless those bailout funds can be given to it by the middle of December at the latest, the worry is that it'll be forced to default on its debts, thus dropping out of the euro altogether.
Which is where Italy comes in. If Greece can't be saved, then the possibility arises of Italy also being beyond help: particularly given the fact that its government has yet to approve the terms of an austerity deal. Analysts have already predicted the end for Italian PM Silvio Berlusconi in a 'crunch vote' on public finance tomorrow (although in similar situations in the past, he's had all the staying power of a cockroach in a nuclear holocaust. So don't underestimate him). If Italy does go the way of Greece, though, things will look much worse: while Greece makes up just 2% of the eurozone's GDP, Italy is its third-biggest economy. So who knows - this Greek tragedy could be but a very unpleasant dress rehearsal for the real thing.
- Image credit: Flickr/World Economic Forum
To Greece, then, where Papandreou and his New Demoncracy counterpart, Antonis Samaras will spend the day thrashing out some kind of deal on a unity government (incidentally, the pair were once college room-mates in the US. So at least it's not the first time they've seen each others' dirty underwear). By the end of the day, the EU has decreed, they must have come up with the name of someone to lead the government until an election is called (likely to be in February).
At the moment, the front-runners are Lukas Papademos - a safe pair of hands, given that he was once the deputy head of the European Central Bank, and current finance minister Evangelos Venizelos. Either way, whoever takes the reins will need to ensure that the terms of the Greek bailout deal agreed by EU ministers a couple of weeks ago are ratified, giving the country an extra €130bn (£111bn) and creating a 50% write-down on Greek debt.
The difficulty is that although the much-maligned referendum has now been called off, there's still no guarantee that a unity government will ratify the rescue package. In part because the eurozone ministers who agreed to it have yet to release the nitty-gritty of its conditions - ie. just how stringent the austerity measures it wants Greece to introduce are. The country's in a desperate position, though: the cash reserves it needs to pay wages and pensions will have dropped below the required €1.5bn by the middle of this month. Unless those bailout funds can be given to it by the middle of December at the latest, the worry is that it'll be forced to default on its debts, thus dropping out of the euro altogether.
Which is where Italy comes in. If Greece can't be saved, then the possibility arises of Italy also being beyond help: particularly given the fact that its government has yet to approve the terms of an austerity deal. Analysts have already predicted the end for Italian PM Silvio Berlusconi in a 'crunch vote' on public finance tomorrow (although in similar situations in the past, he's had all the staying power of a cockroach in a nuclear holocaust. So don't underestimate him). If Italy does go the way of Greece, though, things will look much worse: while Greece makes up just 2% of the eurozone's GDP, Italy is its third-biggest economy. So who knows - this Greek tragedy could be but a very unpleasant dress rehearsal for the real thing.
- Image credit: Flickr/World Economic Forum
