On Tuesday, eurozone finance ministers reached a long-awaited agreement regarding the Greek debt bailout package, saving the country from short-term default.
With a $170 billion financial rescue, Greece now begins the long and painful process of recovering from the brink of financial collapse. The hope is that this second round of financial relief will prove more successful than the first, getting Greece back on its feet for good. Of course, we know better than to buy into the “hope” that the politicians are selling.
The worst-case result of the bailout would be a slide deeper into recession for Greece or an all out new crash. There is always the chance that the nation could default in the future. Eurozone countries are hoping this does not happen.
Instead, they want Greece to begin recovering, which will require it to implement severe austerity measures. They also hope the bailout provides their common currency with a lifeline. Just prior to the meeting securing the deal, the euro increased 0.2 percent.
Greece will now be able to make its $19.2 billion bond payment that is due March 20. Despite this, the other 16 countries in the eurozone have expressed their lack of faith in the nation, as they certainly should. The result was the requirement to implement promised reforms and cuts before any money is distributed by the International Monetary Fund (IMF). Greece must also pass a new law within two months that prioritizes debt repayment over funding of government services.
The country is also required to maintain a separately managed escrow account that must include enough money to service debts for three months into the future.
Since the bailout deal was announced, market and personal reaction has been mixed. Banks and investment funds will be asked/forced/required to forgive $142 billion worth of debt. National central banks in the eurozone, as well as the European Central Bank, must give up the profits from their holdings.
Between this bailout and the first one, every Greek resident now owes the IMF and eurozone approximately $29,000. Many residents see only the long-term burden of loans when they view the agreement. Politicians in Greece view the package as a critical turning point for the country.
We view it with skepticism, as always — the governments of Europe will likely always take an incoherent economic approach to their problems. Greece should have never been in the Eurozone in the first place.
On this historic day in the Greek economy, commodities rallied to their highest in over six months, showing some revealing information on the part of investors. The 24-commodity Standard & Poor’s GSCI Spot Index reached 700.29, its highest level since July 27, eventually closing at 699.92 in New York.
Metals were the top gainers, with silver gaining 3.7 percent. For the first time since 2008, the Dow Jones Industrial Average exceeded 13,000. Many investors are cautiously optimistic that the U.S. economy is improving and are investing in riskier assets like commodities. We, of course, don’t buy into the recovery. If there is a recovery, it’ll happen because of tax cuts in the future, not because of what’s gone on so far.
The economy is recovering in spite of the government, not because of it.
On Tuesday, spot gold increased 1.4 percent, the largest advance since Feb. 7, reaching $1,759.27 per ounce. However, by 2:18 PM on Wednesday in Singapore it had dropped 0.2 percent. The decline was attributed to worry that the second Greek bailout may not put an end to the debt crisis in Europe. As the euro weakened against the dollar, demand for the precious metal as a safe haven was moderated. On the New York Comex, bullion for April delivery changed little at $1,757 per ounce.
Goldman Sachs Group Inc. forecasted annual gains for the golden metal, while at the same time reducing its 12-month commodity returns prediction from 15 to 12 percent. Its forecast for gold was left at $1,940 per ounce and Morgan Stanley shares its bullish outlook on the precious metal. So far this year, gold has advanced 12 percent. Goldman reported that many of the value opportunities have passed and it is now looking to fundamental drivers for additional anticipated gains during the remainder of 2012. It believes these will be focused on the oil complex.
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