Harvard Professor says More EU Nations Will Need Bailouts
Former IMF economist and Harvard professor Kenneth Rogoff said that Greece will in all likelihood not be the last EU member to need a bailout. Rogoff said that Ireland, Spain and Portugal are “conspicuously vulnerable.” Rogoff told Bloomberg, “It’s more likely than not that we’ll need an IMF program in at least one more country in the euro area over the next two to three year. The budget cuts needed in Europe in many countries are profound.” Irish, Spanish and Portuguese bond yields rose and investors remained concerned about massive deficits in the three EU member nations. Last Friday Greece requested the activation of a 45 billion-euro ($60 billion) EU/IMF rescue package. All three EU countries have the highest debt to GDP ratios in the euro zone. Ireland’s deficit was 14.3% of GDP followed by Spain at 11.2% and Portugal at 9.4%. Currently Greece’s debt to GDP is 13.6%, the second highest in the euro zone. Rogoff said that the chances of other EU members needing a bailout is, “better than 50-50” and expects Greece to need more money than the original aid package provides.
Greece Needs More Austerity Measures says German Chancellor
The euro fell against most major currencies on investor concerns that the Greek bailout will not prevent Greece from defaulting. The euro fell to its lowest level since January after German Chancellor Angela Merkel said that Greece will have to adopt even more austerity measures to obtain German approval for the EU aid package. Alan Ruskin of Royal Bank of Scotland Group Plc stated, “The market doesn’t like the way the Germans are talking. There’s a complete lack of confidence in Greece. Worse and more worrisome from a euro standpoint is that contagion is continuing afoot.” Greek bonds were hammered and the premium investors are demanding to hold Greek debt exceeded 12%. The dollar advanced on the yen as investors speculate that the US Federal Reserve will withdraw stimulus measures as US recovery gathers steam.
Euro May Fall Below $1.30
According to some analysts the euro will fall below $1.30 this year if the Federal Reserve raises interest rates sooner than European policymakers. Mansoor Mohi-uddin, a Singapore currency strategist stated, “If the Fed does hike before the European Central Bank and the banks of Japan and England, the dollar will become a growth currency again rather than a safe haven. This suggests euro-dollar and pound-dollar remain at risk in 2010 of falling well below our three-month targets of $1.30 and $1.48, respectively.”
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