Monday, May 3, 2010

France Needs to Issue $12B Euros Debt to Bail-Out Greece (What About Contagion?)

The Greek bailout packaged was desperately put together to avoid contagion to the rest of Europe, mainly Portugal, Spain, Italy, Ireland. However, contagions may happen to other countries anyway, and it may be far worse than expected.

In an interview published on Monday by the newspaper Le Monde, Christine Lagarde, France's Finance Minister, said that France must increase its issuance of debt between 2011 and 2013 raising an additional sum of 12.9 billion euros needed to finance the aid package to Greece.

Imagine if interest rates rise between now and then and/or the recession takes a turn for the worse? What will happen to France?

The French minister also called for changes in pact for stability and growth in the euro zone, modifying it so as to include criteria of competitiveness and financial stability.

"We have not paid enough attention to the differences in competitiveness, which have increased between Germany on the one hand, and Greece, Portugal and Ireland, on the other,"

Lagarde said that countries like Spain, Portugal and Belgium are not in the same situation as Greece. "But it is true that the real challenge for Europe is to regain its growth potential."

In another interview also published by Le Monde, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, said that Greece has no choice but to cut spending, and praised the Greek government for adopting bold measures in this regard.

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