Eurozone crisis.

In a positive signal to end the Euro Zone crisis, the Bundestag today voted in a overwhelming majority to source the £383bn Euro Zone bail out fund. This move will give new powers to buy bonds and recapitalize banks, lifting the financial markets and boosting the euro. 

This measure bolsters the capacity of European Financial Stability Facility (EFSF) to finance liquidity loans to countries in difficulty, if a possible Greek default comes true. German parliamentarians are keen to have greater operational control over the EFSF, with key programmes needing the budget committee approval before they are launched by EFSF.

 

                However the assurance from German parliamentarians comes after a clear message that if Greek’s financial woes have increased then it cannot be funded with more public money. Instead, private creditors (private sector bondholders) will need to take a greater write-down on the value of the bonds.

                The encouraging initiative from the German authorities have prompted the troika – The European Central Board, European Commission, International Monetary Fund – to resume talks with Greece on meeting its budgetary targets as it funds the €8bn tranche of the proposed €110bn of the rescue program.

                Athens is quickly trying to catch with the policy reforms that will reduce public spending. But the government deficit has increased to 22% in the period from Jan to Aug, indicating new measured to reduce its deficit from €24.1bn to €17.1bn. The finance ministry officials are however concerned that there is a revenue shortfall that can be expected because of deeper recession rather than its failure of restructuring policies of its tax administration, estimating that the government can look to lose about €4bn annually in lost income. 

The growth outlook certainly looks grim for Greece, increasingly its chances of default by not clawing back the gaping deficit hole.