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Posted by on Jun 21, 2011 in Economy, International | 4 comments

Greece’s Hyrda Headed Economic

You might want to all Greece’s economic crisis the crisis that won’t start taking — a toll and potential toll. It’s a crisis that seems more grim by the day. USA Today’s Scott Peterson writes:

The crisis in Greece has been a lot like that never-say-die monster in B horror flicks that keeps popping up to scare the audience, even after it’s been gunned down a dozen times. In the past week, the Greek crisis reared its head again, triggering a sell-off of risky assets around the globe. What happened this time?

First, the facts. Greece is in a serious fiscal hole. Its public debt currently stands at about 350 billion euros, or $500 billion. The immediate concern is about a 12 billion euro ($17 billion) payment it owes on its debt by mid-July.

Last year, Greece agreed to a 110 billion euro ($157 billion) rescue package with the International Monetary Fund and the European Union in exchange for promises to set its house in order with reduced government spending and higher taxes. The expectation was that the Greek economy would eventually stabilize, and tax receipts would increase.

The problem: Greece’s economy is shrinking, in part due to a sharp drop in tourism, one of its top sources of revenue. The Greek government, run by Socialist Prime Minister George Papandreou, is frozen, whipsawed between demands from creditors to cut spending and riots by citizens who feel they’re getting the short end of the stick. Because growth has stalled, last year’s package is seen as insufficient to pull the country out of its crisis. A new deal is being hotly debated across Europe.

Here’s what happened last week: The IMF and EU have been supplying Greece with funds to help it muddle through until the situation stabilizes. The IMF’s own rules, however, stipulate that it can’t lend to a country if it believes the country can’t meet its obligations within 12 months. After looking over Greece’s books — and its shaky political situation — the IMF decided that Greece couldn’t meet its obligations. Suddenly, the short-term stopgaps were at risk, and a default loomed.

The situation cooled off briefly last week after the IMF essentially blinked, stating that it looked as if Greece could work out a deal with its creditors soon. Then, talks to implement a new package stalled over the weekend. Monday, the IMF warned that failure to contain the debt crisis in the eurozone could “result in large global spillovers.”

That’s why investors remain concerned that the Greek monster has only sustained a flesh wound and is likely to re-emerge once again.

Here are the three most likely outcomes:

Go to the link to read the rest.

UPDATE: And now there’s this:

– Greece is preparing to sell off billions of dollars worth of state assets including airports, highways and state-owned companies, as well as banks, real estate and gaming licenses, to meet international lenders’ demands that it raise funds.

European finance ministers said Sunday that they were on track to give Greece a second huge bailout to keep the government afloat, but reiterated that Athens had to take tough measures to get it.

Greece has to raise 50 billion euros ($71 billion) through privatization by 2015, Eurogroup members said. It also has to push through tough budget-cutting measures, they said, despite widespread protests in the country that forced a government reshuffle last week.

Prime Minister George Papandreou faces a vote of confidence in his new ministers this week as his party clings to a wafer-thin majority in parliament. Acknowledging the anger in the streets, European Commission President Jose Manuel Barroso said the moves would bring “hardships” but were “long overdue.”

“If there were an easier route out of the crisis, we would have taken it. But there is not,” Barroso said in a written statement after meeting with Papandreou. “The only way for Greece to return to growth and create jobs in a sustainable way is to restore competitiveness and put its public finances on a solid footing.”

Barroso said the “crucial vote” will be at the end of June, when lawmakers are slated to vote on the privatization plan and further tax increases, pension cuts and layoffs of public workers.

And Greeks are increasingly angry:

Many European countries are in debt.