Just when it seemed like the financial crisis in Greece couldn't get any worse, it did. Eurostat, the Luxembourg-based statistical agency for the European Union, revised its deficit forecast for Greece to 13.6% of gross domestic product, up from 12.9%. Greece's deficit is exceeded in the eurozone only by Ireland, where the deficit is 14.3% of GDP.
Eurostat also hinted that the 2009 data could be worse still as the numbers may not reflect off-market swaps and the surplus of social security funds for 2009.
The ripple effect of the news was immediate: oil prices tumbled; the dollar rose; gold fell; and Greek civil servants staged a 24-hour strike against expected job cuts and recently announced austerity measures. Goldman Sachs (GS) warned that Greece may cut or delay payments to bond investors even if the government decides to accept a bailout package from the European Commission and International Monetary Fund.
Also on Thursday, Moody's Investor Services downgraded its rating on Greece's sovereign debt and warned that further downgrades could be in the offing. The credit ratings agency says that the reduction in its rating to A3 from A2 is based on the view that there is a significant risk that the country's debt may only stabilize at a higher and more costly level than previously thought.
Earlier this month the 16 eurozone nations pledged to chip in nearly $30 billion to provide Greece with a lifeline in an effort to calm the markets over Greece's spiraling deficit. The IMF said it would throw in another $10 billion. The hitch was that the Greek government had to ask for the cash, and Greece did not express any interest in a bailout. At the time the lifeline was offered, Greece's finance minister said it was more interested in a market solution.
"The Greek government has not asked for the activation of the mechanism even though this is already immediately available," George Papaconstantinou reportedly said. "The aim is, and we believe we will continue to borrow unhindered on the markets." According to one report, the proposed eurozone bailout package might not even be legal under European Union rules.
Athens was reportedly interested in raising anywhere from $1 billion to $4 billion from U.S. investors, which was scaled-down from the original wish to sell $10 billion in bonds.
Hypothetically, if the Greek government were to accept the bailout offer, all leaders of the eurozone nations would have to agree to it, which would require an emergency meeting.
In the meantime, Greece requested talks with the IMF and the European Union to open talks on aid. Those talks started on Wednesday.
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