The proposed increase of European Central Bank’s interest rates and the expansion of the political crisis in both weak (Portugal, Ireland, Spain) and strong euro zone countries (Germany, France) complicate the financial and political environment, in which Greece must deal with its debt crisis.
European Union sources admitted that the situation now is extremely difficult, despite the decision of the last European Summit, as the possibility of a deeper recession limits Greek economy’s ability to meet demands of the measures, which were initiated by the Memorandum.
In this context, they note that the comments of German magazine Der Spiegel that International Monetary Fund suggests Greece to proceed with “voluntary” debt restructuring, despite mutual denial, do not lack a reasonable basis, as the combination of higher interest rates and a prolonged recession make a restructuring impossible through the Memorandum.
However, such a policy cannot be promoted as a European Union initiative as it could cause sharp deterioration of the situation not only in Portugal and Ireland, but in other euro zone countries with high debt.
For this reason, it is estimated that the second quarter of the 2011 will be crucial for Greece and the euro area, as the process of banking stress tests is expected to emerge high needs for recapitalization of European banks that have to be covered by governments.
The same sources also note that decisions of the European Summit has left many issues open, especially the details of the financing of the euro zone rescue funds.
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