Greece

June 28, 2011

What happens if Greece defaults on their Debt?

The markets have been trading up and down lately due to many factors affecting the global economy. One of the biggest single factors is the Greece Debt and how it will play out. Greece has borrowed from European banks to pay down their debt and remain solvent at the same time. Now they must implement severe austerity measures so that European banks will lend them more money to pay down their debt.

A sizable but peaceful demonstration was held in Greece’s second city Thessaloniki — the country’s lawmakers are preparing for their second day of debate over the austerity measures. The package and an additional implementation law must be passed so the European Union and the International Monetary Fund release the next installment of Greece’s euro110 billion ($156 billion) bailout loan.

Without that euro12 billion ($17 billion) installment, Greece faces the prospect of a default next month — a potentially disastrous event that could drag down European banks and hurt other financially troubled European countries.

But even lawmakers from the governing Socialists have been upset over the latest measures and Prime Minister George Papandreou has struggled to contain an internal party revolt. He reshuffled his cabinet earlier this month to try to ensure his party’s support for this vote, but the Socialists still only have a 5-seat majority in the 300-member Parliament.

Papandreou urged lawmakers Monday to fulfill a “patriotic duty” by voting in favor of the new measures, but two of his own lawmakers have suggested they won’t. European officials have also been pressuring Greece’s the main conservative opposition party to back the austerity bill.

The latest austerity measures must pass in two parliamentary votes Wednesday and Thursday if Greece is to receive another batch of bailout funds to see it beyond the middle of next month. If the votes don’t pass, Greece could become the first eurozone nation to default on its debts, sending shock waves through the global economy.

Even with the new austerity measures and a second bailout, many investors still think Greece is heading for some sort of default because its overall euro340 debt burden is too great.

Oil climbed more than 2 percent Tuesday ahead of a vote in Greece to approve tough new financial reforms that would shore up its beleaguered economy.

On its own, Greece’s financial trouble wouldn’t normally move world oil prices. But analysts say that if the country fails to pay its bills, its problems could spread to neighboring countries and undercut the European Union’s economy.

How this will effect Wall street is uncertain but there will be some impact to U.S. Stock Markets and could push them lower if Greece cannot resolve their financial problems. For the beginner investor, its important keep track of current events an how they impact your investment portfolio.