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Greece - Debt Financing Outlook for 2009 and Beyond - by Georgios Zoumpoulidis
If macroeconomics is about understanding, microeconomics is mostly perception; and where financial markets are concerned, at times, even deception. Take Greece for example - a typical example of a peripheral, debt laden Euro economy. Its first crash test for 2009 will probably be on Jan 13, when its first bond auction for 2009 will take place. It is almost certain that the spread between Greek and German bonds will be more than 200 points. But what exactly does this spread tell us? Strictly technically speaking, in times of recession, debt laden economies behave more or less like highly leveraged stocks - the banks squeeze liquidity (shutting down lines of credit, for example) and then ask for added insurance and/or even partial/full repayment of debt. This course of action marks a turning point for the underlying company - management is forced to either wake up and turn around the company or prepare to file for bankruptcy (for a state, that would be something like asking the IMF for help!). But there is a crucial difference, if you are a member of EU: you can't really go into "turnaround" mode; you can't print your own money.
Note EU-Digest: Just imagine if we did not have the euro today in the EU. With the financial crises the world is facing it would have meant utter chaos on the European financial markets. Lets face it: together we are able to survive in Europe, divided we fall
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