Tuesday, August 7, 2012

Greek Sovereign Debt Crisis Outbreak

Over the past six months, the debt crisis, ups and downs in Europe, Standard Poor's, Moody's and Fitch, the people familiar with the names frequently appear together with Greece, and each seems to bring bad news.

Greek sovereign debt crisis

December 8, 2009, Fitch took the lead in Greece's sovereign credit rating from "A-" reduced to "BBB", while the Greek public finances prospect identified as "negative." 14 days later, Moody's will be short-term sovereign credit rating by the Greek A-1 down to A-2 level. At this point, the Greek debt crisis finally broke out.

April 22, 2010, the U.S. credit rating agency Moody's announced that the Greek sovereign debt reduction credit rating. Greek bond market, prices fell the same day, financing costs (yield) soared. April 23, the International Monetary Fund (IMF) announced that the Greek Government formally apply for a loan to the organization, requiring rescue.

April 27, 2010, the international credit rating agency Standard & Poor's of Greece's long-term sovereign credit rating from BBB reduced to BB, short-term sovereign credit rating from A-2 down to B, the rating outlook as negative. In addition, Standard & Poor's also lowered the Greek National Bank, Euro Bank, Alpha Bank and Piraeus Bank's credit rating. It started since the euro since the euro-zone countries, the first long-term sovereign credit rating was rated as junk. This deepened the crisis of external debt for the escalation of the Greek panic, triggering a turbulent global market.

Other European countries quickly became the target downgrade the Big Three. The end of April, Standard & Poor's long-term sovereign credit rating of Portugal from A down to A-. Early May, Moody's Aa2 to Portugal's sovereign credit rating on negative-level watch list, down two steps and raised the possibility of warning. The end of May, Fitch announced that Spain's sovereign rating lowered to AA from AAA grade level. As a result, the debt crisis of the Greek debt crisis began to develop in Europe. Trigger a global market panic, the U.S. and global stock markets have plummeted.

Greek EU rescue plan by 750 billion

European debt crisis intensified. May 2, the euro zone and the IMF program of assistance by Greece. The main content of the program, the euro zone and the IMF jointly provide 110 billion euros to the Greek loan over three years in place; the first batch of 30 billion euros of funds in the May 19 put in place to enable the Greek government to pay when due 85 billion euros in debt.

However, this rescue package not enough to appease the market. Investors that the EU action to help Greece too late, too weak. Debt crisis has spread to Greece, Portugal, Spain and even Italy, the financial market unrest on the rise. Greek domestic protests, the credit market tightening, May 6 U.S. stock market appeared unable to explain the drastic devaluation of the Greek sense of crisis in the market may be the same as the year of Lehman Brothers, have systemic crisis.

All this prompted a few days after another EU finance ministers meeting to discuss countermeasures. Swedish finance minister said at the beginning of Berg, if you can not put a convincing solution, then the deficit by "contagion" of the country will become speculators "Wolves behavior" of the victim.

May 10, EU-27 finance ministers in Brussels after urgent consultations, introduced the "euro's stability package." Under the plan, the EU will establish a fund of up to 750 billion euros to help finance and debt crisis that emerged in the euro countries, in order to maintain stability of the euro. Its purpose is to prevent speculation in financial markets, the euro, the debt crisis of the state of the implementation of relief measures.

The history of the largest financial rescue mechanism consists of three parts, of which 440 billion euros by the euro-zone countries to provide the basis of mutual agreement between the three-year, 60 billion euros will be the EU's "Lisbon Treaty" as the basis of relevant provisions, by the European Commission raised from the financial markets, in addition to the International Monetary Fund (IMF) will provide 250 billion euros. The new aid program will, when necessary, Portugal and Spain to the high fiscal deficit, instability facing the country to provide support.

Immediately after the rescue plan, the implementation of the European Central Bank said it would "interfere" in order to ensure the market's "depth and liquidity." May 10, the European Central Bank began to purchase bonds. However, the ECB said that this intervention is sterilized intervention type, that does not increase the total currency amount of the financial system.

The ECB also restart the unlimited three-month fixed-rate loan, which is against the credit market crisis, European Central Bank an important tool. Germany, France and Italy's central bank said the 10-day purchase of government bonds has started, but did not provide specific situation. The ECB and the Fed has restored the dollar - euro exchange mechanism. May 9, President Obama to German Chancellor Angela Merkel and French President Nicolas Sarkozy expressed the need to take decisive action to restore investor confidence. This shows that the U.S. is very worried about Europe's crisis will affect U.S. economic recovery.

EU and European Central Bank's move to drive the global market rally. May 10 euro jumped to 1.3 U.S. dollars in one fell swoop. Greece 10-year borrowing costs fell by nearly half, also rose in New York stock market opened, the Dow surged 400 points or more, while the three major indexes rose more than 4%. Asian markets generally rose. Japan's Nikkei index closed up 1.6%, Australian stocks closed up 2.7%, mainland China Shanghai Composite rose 0.4%, while South Korea and China Taiwan stocks rose 1.8% and 1.3%. Hong Kong Hang Seng Index rose 2.5%.

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