Greece Heads Back for the Fiscal Cliff

The nation was nearing default but a rescue package gave the impression t they were saved. Instead the situation has gone from bad to worse:

April 22 (Bloomberg) -- The European Union said Greece’s budget deficit last year was worse than previously forecast and Moody’s Investors Service cut the country’s creditworthiness, sending Greek bond yields soaring.Greece’s deficit was 13.6 percent of gross domestic product in 2009 and may be revised to as high as 14.1 percent because of “uncertainties” about Greek economic data, Eurostat, the EU’s statistics office in Luxembourg, said today in a statement.

Moody’s cut its rating on Greece one notch to A3, saying the EU’s “fractious mobilization” of emergency aid for the cash-strapped nation means it will be “significantly more difficult” for the rating to remain “within the A range.”Greece’s benchmark 10-year bond yield rose to 9.03 percent, the highest since 1998 and almost three times the comparable German rate. The cost of insuring government debt against default climbed to a record today. The yield on the two-year note soared more than 275 basis points to breach 11 percent, indicating that investors perceive a growing risk of default or restructuring.

Greece’s widening deficit and questions about the accuracy of its economic data have undermined the credibility of the EU’s budget rules and contributed to a 7.2 percent slide in the euro this year. Greece’s soaring financing costs have forced the EU and the International Monetary Fund to offer as much as 45 billion euros ($60 billion) in emergency loans.

Breaking Rules

“They have played against the rules and now they’re getting the bill,” said Sylvain Broyer, chief European economist at Natixis in Frankfurt. “It’s a very uncomfortable situation for the Greek government. Greece has very much benefited from the currency region, but ignored the rules.

Could it happen here?