G8 Summit ended with pledge to support growth and Greece

The four day G8 Summit closed out at Camp Davis on Saturday with world leaders coming down in support of growth and saving Greece from the current financial crisis. At the same time, the leaders of the world put the onus on their European counterparts to deal with the financial turmoil before it starts hurting the rest of the world economy.

British PM David Cameron called for “decisive action” and “contingency plan” to combat and tackle the eurozone crisis. He also delicately prodded that the European Central Bank (ECB) should consider printing notes to revive demand in the single currency block.

US President Barack Obama, the host of the Camp Davis Summit, called upon the leaders of France, Germany and Italy to resolve the crisis through restoring public finances and encouraging stimulus. Keeping an eye on his re-election chances, President Obama proposed “stimulus” for job-creating infrastructures, and balancing it with “reforms” in order to address debts and deficits.

Lastly, in order to address the political and economic upheaval in Greece, the leaders of the G8 nations also reaffirmed their interest in keeping Greece within the euro zone. Though, they didn’t propose any solution to tackle the turmoil in Greece.

Obama joins French President Hollande to back growth

While welcoming G8 leaders at Camp Davis on Friday, President Obama has hoped that the world leaders would find a solution to eurozone crisis that would be a pragmatic mix of “fiscal consolidation” and “strong growth agenda”. He also stressed upon the importance of Europe and its strong hold on American economy and the need to put Europe back on the growth path. With Europe already bracing for possible Greek exit, Obama’s take on “growth” is expected to divide the house into two and set the ball rolling for more heated debates.

It seems that French President Francois Hollande’s pro-growth policies have found an echo in his American counterpart, Barack Obama. In aligning with growth, Obama is believed to have distanced himself from Angela Merkel-backed austerity program.

Obama’s view reflects the growing fear of eurozone financial crisis and its cascading effects on other parts of the world. This has the potential to hurt the slowly recovering US economy also Obama’s re-election chance. It is believed that  the four day Camp David summit would be the ultimate testing ground for international diplomats not only to iron out their differences, but also to find a viable solution to euro zone crisis that has threatened to plague the entire financial world.

Greece seeks re-election as coalition talks turn unproductive

The latest coalition talk in Athens ended without success as President Carolos Papoulias failed to persuade front-line political leaders to back technocrat government. The idea of technocrat government was proposed by the President himself after mainstream political parties in Greece failed to come up with a unity government. For Greece, this means it has to brace for repeat general election, which is going to further drain its economy, or face bankruptcy.

The Evangelos Venizelos-led Socialist Pasok party blamed the negative outcome of the meeting on arrogant, petty party politics and opportunism. On the other hand, the leader of the Syriza party, Alexis Tsipras, emboldened by his party’s success in the latest general election, stated on a high note that he resisted any move to support the pro-bailout deal in every possible way he could.

Earlier, eurozone leaders, gathered for financial ministers’ meeting in Brussels, have rubbished Greece’s exit from euro as propaganda. However, they have acknowledged preparing contingency plans. The EU leaders have clearly stressed that unless Athens fully agrees with the bailout reform plan, they are not going to receive International monetary aid.

Prospect of lower ratings looms on Eurozone nations by S&P

Fifteen of the seventeen Eurozone countries are under scanner by the US credit rating firm Standard and Poor (S&P) for their failure to tackle financial crisis. Countries that are likely to be affected by Standard and Poor’s announcement on Monday include some of the heavy-weights known for their fantastic credit worthiness until recently. Nations about to be stripped off their triple-A credit status are Germany, Netherland, Finland, Austria, France and others. The only two countries who are unaffected by this recent development is Greece and Cyprus (already downgraded).

The negative prediction by S&P is based on the growing fear that Eurozone financial crisis may no longer be restricted to member countries using Euro currency only. The crisis could soon have a cascading effect on the entire Europe. As per Standard and Poor, the unfolding of five inter-related factors have resulted in deepening of Eurozone crisis. These five critical factors are - Severe credit crunch, failure of affected countries to boost market confidence as well as absence of an uniform policy to address the crisis of EU nations, growing credit risk even in nations boosting AAA ratings, prospect of recession in Euro zone in 2012 and increase in government and household loans.

Policymakers questioned the timing of Standard and Poor in coming up with the announcement on Tuesday when the entire EU nations are waiting for Thursday's EU summit. Reducing the ratings of countries before the EU summit may worsen the current crisis.

A new accord to address Eurozone debt crisis

After some hard bargaining, European leaders have finally succeeded in striking an agreement that could tackle the much-awaited Euro crisis or Eurozone financial crisis. Under the agreement reached on Thursday early morning, European banks would absorb 50 percent losses on Greek debt and would also step up the rescue package from 440 billion Euros to 1.4 trillion Euros. This is expected to address three important issues on hand – Greece debt crisis, unstable banking sector and, finally, global economy.

The agreement calls for Greek private bondholders to voluntarily write off the bond value by 50 percent, which roughly amounts to 100 billion Euros. This is believed to bring down their spiralling debt burden from 150 percent to 120 percent of its economic output (GDP) by 2020.

As a first step, banks are required to raise new ‘safe’ capital – at least 150 billion Euros by June end. This is needed to shield themselves from the losses incurred on loans to capital-starve countries including Greece. That, in turn, should increase their risk-free asset holdings to 9 percent of the total capital.

Though definitely a positive step, it remains to be seen how this enormous amount would be funded. Question is, can they arrange for such a massive bail-out fund? Only time will tell.