Global Financial Stability Report (GFSR) released on April 20 by IMF states that now the “biggest threats have moved from the private to the public sectors in advanced economies”. Various reports of IMF which have come out during the end of 2009 and beginning of 2010 were more optimistic about the Global economic recovery.

But the development in many of the Euro area countries like Greece and Portugal forced IMF to change its stand and they are less optimistic now. In the GFSR report IMF experts observe that concerns about advanced country sovereign risks could undermine stability gains and prolong the collapse of credit. Without more fully restoring the health of financial and household balance sheets, a worsening of public debt sustainability could be transmitted back to the banking systems or across borders.

The IMF warns that the increase in sovereign risk can hit banking systems and real economy that produces goods, services and jobs. It may be noted that millions of jobs have been lost all over the world since the crisis broke out in 2007.Now IMF is telling more jobs will be lost due to sovereign debt crisis.IMF chief Dominic Strauss-Khan told in a conference recently that public debt in advanced countries is forecast to rise by about 35 percentage points on average to about 110 per cent of Gross Domestic Product in 2014. In his opinion reversing this increase of debt will be a tremendous challenge.

The sovereign debt crisis have attracted the attention of everybody when a European Union member Greece fell into debt crisis at the end of 2009.Euro area Countries like Portugal, Spain and even Italy are also suffering from a combination of big budget deficits, poor growth prospects and high debt burdens. It was reported that deficit of Greece is 12.7% but a new Eurostat Data released on Apr.22 2010 put the Greek deficit at 13.6%, almost one percentage point worse than expected. Additionally, Moodys a rating agency down-graded Greek debt to A3 status. On 23 April, Fitch, another rating agency down graded Greece’s sovereign rating to BBB- from BBB+ with a negative outlook, citing a worsening macro outlook. There are lot of manipulations happening in the rating of these rating agencies but in the present juncture its very significant for Greece because Greece was finding it difficult to sell its bonds in the market. Now it will be further difficult and the interest rate to be paid on bonds also will go up.

On April 11th, when the Greek crisis aggravated and signs of a possible run on its banks emerged, Euro-area leaders offered the Greek Government a loan of three years of 30 billion Euros and IMF a loan of 15 billion Euros. The Economist, in its 17th April issue observed that Greece’s medium term outlook is darker than what is admitted by either its government or the EU.

Economist has reckoned Greece’s requirement of long term loan at 67 billion Euros. A debt payment default by Greece will be calamitous for the fragile European banking system opined Economist. Euro area banks hold 120 billion Euros exposure to Greece of which around 70 billion euro is sovereign debt. Economist warns that if time is not used well by Greece and other Euro area countries calculation could rapidly change and situation may become grave. By “Using time well” they mean Greece must tighten its public finances for a long time. They should restructure its economy to boost competitiveness and growth in the usual IMF way. The to-do list for Greece includes Fiscal austerity measures, radical tax changes, cuts in public sector pay, pension reforms and freeing labour markets.

Economist adds these reforms, long overdue, are now essential.On may 1st European Commission,European Central Bank and International Monetary fund have jointly decided to support greece with a package of 110 billion Euros (About $145 billion).The package comes with a host of anti people austerity measures but still it is doubtfull whether Europe will be able to sail safe out of the crisis.

Workers who are already in trouble due to economic crisis are being pushed to further misery. So there is stiff resistance to the austerity measures by the workers. Greece has seen series of nationwide strikes from February 2010. A massive nationwide strike took place on April 22. In the April 22 strike doctors, nurses, teachers, tax officials and dockers participated paralysing public services.

Thousands marched to parliament to press Government not to agree for further cuts as it is about to discuss aid package with EU and IMF. Illias Iliopoulos, Secretary General of Public Sector Union ADEDY which represents half a million workers stated on 22 April that “These bloodthirsty measures won’t help Greece exit the crisis. A tragic period begins”. A civil servant Pavlina Parteniou told that “We won’t tolerate any more measures because we cannot make both ends meet. Why don’t they catch those who stole the money? Is my salary and my mother’s pension of 300 Euros going to save the country”.

Investors and Policy makers are closely watching the workers resistance. April 22 saw the fourth nationwide strike called by the public sector union in 2010. A massive nationwide strike has taken place on May 5. IMF predicted that unemployment would rise to 13% in 2011 and the Greek economy will contract by 1.1 % next year.

While the Greek crisis was escalating and efforts to save Greece were not yielding desired results, on April 26 reports started coming that Portugal also is in big trouble. It poses a new threat to the 16-member Euro Zone. The cost of holding Portuguese Government debt has been rising rapidly signalling fears that the contagion could spread from Greece. Portugal’s budget deficit stands at 9.4%. In an article in New York times a former IMF Chief economist wrote “Greece and Portugal are economically on the verge of bankruptcy and they each look far riskier than Argentina did back in 2001 when it succumbed to default”.

Economists are warning that Portugal may slip in to a recession with disastrous consequences. On April 27 S&P, a rating agency has cut Portugal’s long term and foreign currency sovereign rating from A+ to A- and said the outlook is negative. In Portugal also there is stiff resistance from workers against implementing any type of austerity measures.

The situation in Spain also is very serious. The budget deficit of Spain stands at 11.4% at the end of 2009. The unemployment rate in Spain stands at 19.4%. Around fifty lakh people are unemployed in Spain. 50% of the youth are unemployed. In 2010 alone, more than 130000 workers lost financial and political viability of U.S. to maintain its global hegemony.

The financial crisis in Euro-area is even questioning the existence of European Union. There are growing resistances by workers in various parts of the globe especially in Europe to the austerity and restructuring agenda of finance capital.

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