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Two key questions moving forward on Greek debt bailout

Okay, so the ball is rolling on the Greek debt bailout. This morning, Greece -- which has been in a debt spiral in recent months -- requested a $56 billion rescue package from its reluctant neighbors and the International Monetary Fund.

"The moment has come," Prime Minister George Papandreou said in nationally televised remarks while visiting the Aegean island of Kastelorizo. "Today, the situation in the markets threatens to deconstruct not only the sacrifices of the Greek people, but also the smooth course of the economy."

Greece is in real trouble. Not the kind of trouble the U.S. was in during fall 2008. Much worse trouble. Trouble as in, defaulting on its debt. In other words: an entire nation, declaring bankruptcy. In addition to the worldwide humiliation, a Greek default could pull down an already stagnant Europe with it. As my colleague Tony Faiola and I wrote in The Post this morning:

Hampered by high levels of unemployment and government spending, the 16-nation bloc that shares the euro was hopeful of achieving a very modest 1 percent growth in GDP this year, compared with 3.1 percent for the United States, according to the IMF. If Greece defaults, Europe will be hard-pressed to show any economic growth this year.

There are two key questions going forward that must be answered in this situation:

A) What will Greece be asked to do to get the bailout money and will the nation comply? Greece has already instituted several austerity programs, but it hasn't been enough. For decades, Greeks have lavished in extraordinary social benefits from their government. For instance, most Greeks can begin receiving retirement benefits at 61, about the lowest age of any developed country. The maximum retirement age for Greek men is 65; for woman, it's 60. In February, Athens said it would raise the retirement age a whopping two years -- by 2015. This may seem like a massive hardship for the Greeks -- indeed, this and other austerity measures have set them to rioting -- but, frankly, for a nation on the edge of bankruptcy, it ain't asking a lot. Greece will be asked to do much more belt-tightening to get the $56 billion, and the Greeks aren't likely to take kindly to that.

B) Whither Germany? As the strongest European economy, the German public has opposed a Greek bailout, fearing they would have to unfairly shoulder a heavier burden than the rest of Europe to bail out a bunch of 61-year-old pensioners. This morning, German Chancellor Angela Merkel, who had opposed the Greek bailout, said any rescue plan will be tied to "very strict conditions" (and I would have loved to have heard her say that in German-accented English), which will have to include a Greek savings plan. Also, and this is a not-so-subtle, let-the-grown-ups-handle-this, Merkel said the bailout will not come until Greece finishes it talks with the IMF and then the IMF, the European Commission and the European Central Bank huddle.

This story is far, far from over.

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By Frank Ahrens  |  April 23, 2010; 1:31 PM ET
Categories:  The Ticker  | Tags: Angela Merkel, European Central Bank, European Commission, German Chancellor Angela Merkel, Greece, International Monetary Fund, Prime minister, United States, greece debt crisis, greek debt  
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Next: Will European bailout actually help Greece debt crisis? Maybe not.

Comments

If Greece defaults on its loans won’t this effect the cost of financing US debt?

Won’t US debt holders, such as China, demand a bigger premium (a higher interest rate) to accept the risk of funding the debt?

Posted by: blue_bottle_boy | April 23, 2010 3:58 PM | Report abuse

I was doing some survey work at a lifestyle center site. I got the truck ditched, bent the bumper and bottomed out. Long story short, I had a shovel in the bed and dug myself out. Never dig in.

Posted by: tossnokia | April 23, 2010 4:47 PM | Report abuse

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