Italy & Greece unveil austerity plans

June 2, 2011

The saga of Greece’s economic collapse continues. Greece’s troubles offer a concerning preview of the fate the U.S. could face if we don’t rein in runaway government spending. Our video, The Greecing of America, displays just how similar our fiscal trajectory is.

In the latest news, Greece is set to reveal another austerity package in an effort to control its massive debt burden.

Reuters reports:

Greece and a team of EU/IMF/ECB inspectors are set to conclude talks by Thursday on a medium-term fiscal plan including the government’s progress toward meeting budget targets, a Greek newspaper reported on Wednesday.

The new package, expected to total around 65 billion euros according to EU officials, could involve a mixture of collateralized loans from the EU and IMF, and additional revenue measures, with unprecedented intrusive external supervision of Greece’s privatization program.

The discussions come on the heels of a further downgrade from Moody’s to Caa1 from B1. The downgrade indicates the Greece now faces a 50% chance of default.

Moody’s explained in a statement:

Taken together, these risks imply at least an even chance of default over the rating horizon. Over five-year investment horizons, around 50 percent of Caa1-rated sovereigns, non-financial corporate and financial institutions have consistently met their debt-service requirements. Around 50 percent have defaulted.

Unfortunately, Europe’s problems are hardly contained to Greece. To address fears after Moody’s cut its outlook for the country’s A+ rating from “stable” to “negative,” Italy announced a sweeping plan to cut its deficit. The plan, intended to reassure financial markets, would cut 35-40 billion euros ($50-$56 billion) from Italy’s deficit and balance the budget by 2014. Italy’s public debt burden currently stands at a staggering 119% of GDP.

Often it’s difficult to see the affects of government overspending. A quick look across the pond should provide enough context for lawmakers to realize they must take action and cut spending now.

 

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