Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.
Download MP3
Greece has formally asked for the activation of an EU-IMF financial rescue package to help pull the debt-ridden economy out of its crisis. It had hoped that just the promise of EU support, agreed last month, would have been be enough to reassure markets and help its recovery. But Greece’s problems have continued to hit investor confidence in the euro and other European economies. Eurozone countries will now provide tens of millions of euros in loans. The World’s Jason Margolis has more about the potential ramifications back in the United States.
Read the Transcript
This text below is a phonetic transcript of a radio story broadcast by PRI’s THE WORLD. It has been created on deadline by a contractor for PRI. The transcript is included here to facilitate internet searches for audio content. Please report any transcribing errors to theworld@pri.org. This transcript may not be in its final form, and it may be updated. Please be aware that the authoritative record of material distributed by PRI’s THE WORLD is the program audio.
JEB SHARP: I’m Jeb Sharp, this is The World. Greece’s Prime Minister today described his country’s economy as a sinking ship. He formally requested a $40 billion loan from the other Euro Zone countries, and he asked for another $15 billion from the International Monetary Fund. The European bail out still needs approval from the 15 other countries that use the Euro, but as The World’s Jason Margolis reports, Greece’s financial woes reach well beyond Europe.
JASON MARGOLIS: In terms of the global economy, Greece isn’t that big of a player. It’s economy is one tenth the size of Germany. It’s one fiftieth the size of the United States. But the Greek economy alone, that’s not the problem.
J.D. FOSTER: We’re at risk here not just of Greece getting into trouble, but a classic contagion where markets go from one country to the next saying who’s next?
MARGOLIS: J.D. Foster is an economist at the Heritage Foundation in Washington. Greece’s problems have been grabbing headlines for several months, and we’ve been hearing about the possible domino affect in Europe, Portugal, Ireland, Italy and Spain also face financial problems. But now that Greece is saying it will default on its loans if it doesn’t get a bail out, that’s no longer just a European problem, says J.D. Foster.
FOSTER: And that will reverberate back into not just Wall Street, but to local banks and their ability to make loans and keep credit flowing in Wisconsin and Tennessee.
MARGOLIS: Financial troubles in Greece are also weakening the Euro. For Americans looking for a cheaper European vacation, that’s good news. But Desmond Lochman at the American Enterprise Institute says a weaker Euro hurts a lot of American companies.
DESMOND LOCHMAN: So any notion of the United States being able to export, increase it’s exports, that gets challenged by developments in Greece.
MARGOLIS: The White House said today it supports new loans to Greece, but some economists aren’t so supportive. Jacob Kierkegaard with the Peterson Institute for International Economics says loans just delay the inevitable.
JACOB KIERKEGAARD: So it basically covers the refinancing needs for Greece for perhaps the next six to nine months. But then the problem is what happens next year?
MARGOLIS: Will Greece get another loan then? Or is six to nine months enough time for Greece to get its financial house in order? Economist J.D. Foster doesn’t have much faith that will happen.
FOSTER: Helping out Greece at this moment is a little bit like buying a beer for a drunk hoping that it will make his hangover go away.
MARGOLIS: Foster says it’s going to be painful, but Greece has to sober up on its own.
FOSTER: You cannot make the bill go away. You shouldn’t ask the citizens of France or Germany or any of these other countries that have behaved properly to bail them out. They now have to pay the price.
MARGOLIS: But Greece is in an extremely difficult position says Desmond Lochman because it doesn’t have its own currency anymore.
LOCHMAN: It’s that it’s very difficult to correct a large budget deficit without having your own currency that you can devalue to spur your exports. So if Greece does try to adjust its budget deficit in a Draconian manner, it will find that it has a very big recession.
MARGOLIS: Many economists agree that there is an inevitable conclusion to this game. At some point, Greece simply won’t be able to pay back its loans in full. Banks and financial institutions across the globe will be hurt. Jacob Kierkegaard says coordinating who gets paid back and how much they get, that’s going to be very difficult.
KIERKEGAARD: Basically the ability to get everybody to come into a smoke filled room, if you like, to sit down and negotiate a deal about who gets to take how big a haircut and how we’re actually going to restructure this. The realistic haircut that we’re talking about here is going to be, in my opinion, very substantial.
MARGOLIS: European banks and financial institutions face the largest losses. But if you have an international bond mutual fund, chances are you’re going to get some of your hairs cut too. For The World, I’m Jason Margolis
Copyright ©2009 PRI’s THE WORLD. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to PRI’s THE WORLD. This transcript may not be reproduced, in whole or in part, without prior written permission. For further information, please email The World’s Permissions Coordinator at theworld@pri.org.
Discussion
One comment for “Greece asks for international aid package”