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Plan To Rescue Greece Portugal And Ireland From Economic Woes

by Jim ONeil on April 15, 2011

in uk loans news

Leaders of the eurozone are formulating a plan to rescue the struggling economies of Greece, Portugal, and Ireland. These may not be the only eurozone countries that need assistance because Spain has been mentioned and others may follow.

Germany is leading the rescue effort for the three countries in the most dire straits, promising a huge package of guarantees and loans.

The hope is that markets will soon be purchasing Greek, Portuguese, and Irish bonds as they were before the credit ratings of the three countries tanked. It remains to be seen what effect this rescue may do to the ratings of the lending countries.

Providing loans to countries that are bad risks could negatively affect the ratings of these nations.

In the future, no eurozone country may have a spotless AAA rating like the U.S. and Britain. Even a country like Germany could find it more expensive to borrow within the money markets should it become a lender to multiple countries. The plan is to make the guarantees and loans contingent on the recipient countries getting their budgets in shape but that overhaul is not likely to happen.

Both the Irish and Portuguese governments have fallen in an attempt to rectify their budgets and Greece is tottering on collapse. Voters within each of these nations do not want a period of economic austerity, creating quite a dilemma.

One relatively easy solution is to allow them to have their own currencies and repay bondholders using bankruptcy-esque terms.

Being tied to the euro will perpetuate the economic troubles for these troubled nations. Even supporters of a common currency cannot deny that if one of them defaults, effects will be felt throughout the eurozone’s commercial banking system.

A eurozone breakup will weaken the EU and Britain can use this knowledge to push renegotiation of the treaty committing it to billions for the bailout of these countries.

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