Sovereign debts of Greece and Ireland

Greece and Ireland were insolvent this year and required bailouts from International Monetary Fund (IMF) and European Union. Greece was given a rescue loan package of €110 billion on 23 April while Ireland was given €85 billion on 29 November. These rescue loans were at a lower interest rates compared to what both countries will be charged if they were to float their sovereign bonds in the financial markets. As a condition for the IMF/EU loans, both Greece and Ireland have to cut government spending and bring down budget deficits.

Besides rattling the economies of Greece and Ireland, which are at the centre of the debt crisis, the common currency, the Euro, came under selling pressure because of lack of confidence in economies of the European region. In order to stabilise the region, the European Central Bank bought an estimated US $69 billion of Greek and other government bonds since May this year. The central bank owns about 17 percent of the combined debt of Greece, Ireland and Portugal, according to Goldman Sachs’ estimates. (New York Times)

As the Euro-zone nations tried to contain the sovereign debt crisis of certain countries in order to prevent the collapse of Euro, one can see the crisis not ending soon. With the austerity measures put in place by Greece and Ireland, the reduced government expenditure will have a negative impact on their real economies. With less economic growth comes reduced domestic demand and importing of goods and services from the world will be reduced. Exporting nations which include Singapore, will find themselves with lower export revenue. The global economy will slow in 2011 should this problem persists into the New Year.

The more we know about the European problems, the more frightened we can be. I cannot see how and when this will end because ordinary people do not have in-depth knowledge of these matters. We tend to be the last to know until the news headlines hit us.

Copyright © 2010, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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