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Greek Lawmakers Pass Spending Cuts Required for Loans

June 17th, 2010 at 07:00am Under Economy Report

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This is the VOA Special English Economics Report.

Greece’s debt crisis has shaken investors in the United States and worldwide. They worry that it could spread far beyond Greece.

On Thursday, a day after huge protests in Athens, the Greek parliament approved a series of spending cuts.

Greece has to cut thirty billion dollars as part of a bailout deal with the European Union and the International Monetary Fund. The deal is for one hundred forty-five billion dollars in loans.

The cuts include wage freezes and reductions in retirement pay for government workers. A new requirement raises the retirement age for women from sixty to sixty-five.

Critics say the austerity plan will hurt the poor especially. But Greek labor costs are high even for Europe. And Greece’s public debt is equal to at least one hundred fifteen percent of its economy. The cuts may be the only hope to avoid declaring bankruptcy.

Sebastien Galy is senior currency strategist for the French bank BNP Paribas. He says other European countries delayed rescuing Greece because it was politically unpopular. Now they are paying for it.

SEBASTIEN GALY: “They certainly lost an opportunity that we had in January where it would have cost roughly sixty billion euros to save Greece.”

On Sunday, European countries promised to make eighty billion euros in loans available over the next three years. The International Monetary Fund promised thirty billion.

The quality of Greek government debt is now rated at “junk” levels. The high risk has investors demanding higher interest rates, and not only on Greek debt.

Portugal and Spain have also had their credit ratings reduced. Both borrowed from credit markets in the last few days. And both had to pay far higher rates than Germany, the safest investment in the euro area.

The euro is eleven years old and used as the currency of sixteen countries. But less trust in the euro has reduced its value to the lowest levels in over a year.

Sebastien Galy says growth expectations for the euro area have dropped. This has affected producers of raw materials such as Australia, Brazil and Canada.

But he says the falling euro should help ease the crisis. He expects the exchange rate against the dollar to reach one-to-one within a year. That would be good news for European countries with heavy debt loads.

SEBASTIEN GALY: “The lower the euro is, the more competitive these economies become and, therefore, the more the fiscal concerns are going to be reduced.”

While the euro has fallen, the dollar has gained value. Investors fleeing risk have bought dollars and American debt.

And that’s the VOA Special English Economics Report, written by Mario Ritter. I’m Jim Tedder.

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Looking Back: Wall Street, a Year Later

December 15th, 2009 at 03:39am Under Economy Report

This is the VOA Special English Economics Report.

One year ago, the United States financial system was in danger of collapse. One of Wall Street’s oldest investment houses had just sought protection from its creditors. The Lehman Brothers bankruptcy on September fifteenth was a shock to the system, but not the only one.

Lehman Brothers’ headquarters in New York City on the day the company filed for bankruptcy

A week earlier, the government had seized Fannie Mae and Freddie Mac. These companies help finance most American housing loans. And one day after Lehman’s failure, the government decided that the huge insurer A.I.G. was too big to fail. The Federal Reserve rescued the American International Group with an eighty-five billion dollar loan.

But soon, credit markets around the world slowed to a halt on fears about the health of banks. By early October, Congress passed the Troubled Asset Relief Program, a rescue plan for the financial system.

Banks and other financial companies have received more than two hundred billion dollars. But ten banks agreed in June to repay almost seventy billion of that. And so far, the government has earned about four billion on its investments.

But taxpayers still own almost eighty percent of A.I.G. They also hold big shares of Citigroup and a number of other banks, as well as sixty percent of General Motors.

On Monday, the anniversary of the Lehman collapse, President Obama renewed his call for reform of financial supervision. He said in a speech on Wall Street that some of the “old ways” that led to the crisis have already returned.

BARRACK OBAMA: “That’s why we need strong rules of the road to guard against the kind of systemic risks we have seen. And we have a responsibility to write and enforce these rules to protect consumers of financial products, taxpayers, and our economy as a whole.”

Fed Chairman Ben Bernanke said Tuesday that the recession “is very likely over at this point.” But he said the labor market could remain weak through next year.

Next week, leaders of the world’s largest economies will meet in Pittsburgh, Pennsylvania. They will discuss economic policies and ways to strengthen financial regulation after the crisis. But the Group of Twenty summit also comes as the United States and China face a growing trade dispute.

Last week the Obama administration placed high import taxes on Chinese tires. The aim is to stop what American officials call a “harmful” increase in tire imports. China, in turn, said this week that it will investigate imports of American chicken products and auto parts. China also asked the World Trade Organization to intervene, to avoid a trade war.

And that’s the VOA Special English Economics Report, written by Mario Ritter. I’m Steve Ember.

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