Greece will Be Make-or-Break Test for the Euro

A test of fire for the euro zone and Greece, the common currency’s weakest link, is playing out in the financial markets.
Greece is facing a debt crunch: it must raise €54 billion this year or face default. Athens says it can cut its giant budget deficit and raise the money. But the markets are testing its claims to destruction.
“These six months are going to be crucial. They will be the test for us and, internationally, for our credibility,” Greek Prime Minister George Papandreou said in an interview with The Wall Street Journal Thursday.
His government’s race against the clock began the week well. An international bond issue to raise €5 billion was oversubscribed five times, allowing the government to expand the issue to €8 billion. The debt was expensive, but the government got the money in the bag.
Then the government became embroiled in what Greek officials are calling the China syndrome.
Greece was reported to have mandated an approach to China for money, which was interpreted in the markets as a sign of desperation. Subsequent reports from China, denying any approach from Greece, were then interpreted as a vote of no confidence from Beijing.
In an interview Thursday, finance minister George Papaconstantinou repeated his government’s denials of the stories. “We have not talked to China and no investment bank has a mandate from us to talk to China,” he said. Nonetheless, prices for Greek bonds have continued to sink.
“Nobody is going to leave the euro zone, just as nobody is going to leave the European Union,” said Jose Luis Zapatero, Spain’s prime minister. But the fact that he felt it necessary to repeat that message led some in his audience to wonder why.
The Wall Street Journal