Greeks Blow Budget Estimates

In what may be a coup de grace to Greece’s chance to cooperate with eurozone nations and the IMF to raise money through the sale of sovereign debt by the southern European nation, Bloomberg reports that the government of Greece will raise the estimate of its deficit for 2009 to 12.9% of GDP from 12.7%.

The conversation about the financial future of Greece has turned more often to a default by the country which would damage the balance sheets of a number of banks in Europe that hold sovereign debt issued by the nation

A default would necessarily be preceded by the eurozone nations kicking Greece out of the alliance or Greece resigning from the body. Greece would probably try to devalue its currency before defaulting, but its runaway cost of governing and the propensity of union workers to strike makes the situation untenable.

The largest concern about a Greek default may not be the event in a vacuum. Spain and Italy also have severe budget deficit problems and it is not clear that they can raise enough money in the capital markets to remedy them. Germany, which has the largest economy among nations in the eurozone, has repeatedly indicated that does not plan to help with the bailout of any of its neighbors.

There is a concern that serial default among European nations could severely hurt the value of the euro which would in turn harm the region’s trade balance. The value of the currency has fallen for two days now.

The market senses that what can go wrong will.