Debt crisis continues in Europe owing to turmoil in Greece, Italy

There seems no end to political chaos in Greece and now even in Italy, which lingers over the fate of euro’s health. Italy faces crisis due to high-rise in its debt rates. Markets stay unstable due to political chaos in Italy and Greece and more negative traits are looming over the fate of European Union that will ultimately affect the entire global market too.

Greeks are looking forward to form a new transitional government. In Italy, the political chaos emerged with possibilities of Prime Minister Silvio Berlusconi losing power. This has put investors in doubt over the future market trends  as new democratic governments are likely to make changes unfavorable to investors and so they are pulling back their money leading to more financial turmoil.

Interest rates for Italy’s debt have been increased to 6.6 percent reaching its highest so far since the inception of euro. The finance market set itself into fire following the rumors of prime minister’s possible withdrawal from power but he refuted it later.

Greece’s rush to pull itself away from EU to save itself from the depreciating value of euro had ignited a crisis as international leaders severely criticized the decision. The EU threatened to expel Greece and stop providing any aid. This compelled the political parties of the country to make a written commitment and follow European leaders’ demands in order to get the next installment of aid of $11 billion from the EU.

European Union warns Greece against drama over referendum to stay

European Union warns Greece against drama over referendum to stay

Tired of Greek illusion over the decision to withdraw from European Union to avoid damage to Greek currency, the EU threatens to expel.

European leaders—French Prime Minister Nicolas Sarkozy and German Chancellor Merkel told Greek leader that Greece should help EU to stabilize euro instead of withdrawing to save its own national currency. The leaders also warned Greek Prime Minister George Papandreou that if Greece pulls itself from the union, they would stop providing any aid to the country. The meeting between EU leaders and Greek premier was held in in Cannes.

Following this dilemma, France’s biggest bank BNP Paribas also pulled its exposure to Greece, Spain and Italy to safeguard its balance sheet by reducing the total amount by $17 billion.

Greece was expected to receive an additional aid of 8 billion euro from EU in Novemeber.

German Chancellor Merkel stated during a news conference that she desired Greece to stay as a member of EU and help in stabilizing Euro.

Following the warning, Papandreou talked with Greek finance minister by calling emergency Cabinet meeting in Athens to solve the crisis and seek for a midway.

At the same time, Brazil, Russia, India, China and South Africa also gathered to discuss and solve economic crisis in G20 summit that ended recently.

French banks to assist Greeks in U.S. credit market

French banks are going to pay for help the Greece which is ridden with crisis to overcome a sovereign default. The payments are to be done in the US credit markets. The French banks were charged interests in higher rates on US short term borrowing arrangement. This was done at a rate other what was granted to their European rivals. This is after the French bank has cemented their links to help the Greek debts.

However in the long run these higher rates may turn out to be lower price in paper work, and it may benefit the French banks after all.

They may be some hardships in terms of the rollover but in the long term the they could gain by avoiding further disruptions. Investors are charging French banks more than they do to banks from dutch germany when when they decide to buy any US short term obligations. This is because the French banks more any other banks are more exposed to the Greek debts.

The move by the French banks mark the progress in the Greece debt problems from turning into a global economic crisis. The worry in the US market is centered on how the French banks are going to suffer from that deal in an event that the Greece parliament passes some measures within the week.