Long-Term Change Unlikely Amid Emerging Events in Greece, Russia

With an inevitable bailout for Greece and unrest near Russia coming to fruition, both have dominated international news of late. Still, experts don't these developments to move the needle much within the international business credit game.

After a lengthy feet-dragging display, Greece finally received an aid program from other European Union nations to the tune of $40 billion (USD). The package will come in the form of a three-year loan at a rate of 5%, which Moody's Analytics Associate Economist Andrea Appeddu personally believes is far from "gift" terms.

The euro zone loan program/temporary credit facility should help the Greek government stabilize its massive budgetary and international business borrowing problems significantly in the short-term. However, Greece has dug itself into such a large economic hole that $40 billion in loans unlikely will generate any real long-term financial stability for the perennially free-spending nation. It is expected Greece will receive assistance from the International Monetary Fund (IMF) in the coming weeks to bolster a recovery that is far from guaranteed.

"The effect on the back-end of the yield curve will be less sharp than the front-end," said Appeddu. "Long-term, the euro zone and potential IMF back-up gives a very limited relief of Greece. Its fiscal adjustment is on Greek taxpayers' shoulders. It was so on Friday; it is today as well."

Some analysts went farther publicly, predicting the $40 billion only will help Greece avoid insolvency and default through the end of 2010, but not far beyond.

And though it's no guarantee that the euro zone assistance to Greece will inspire moral hazard on the part of other struggling nations like Portugal or Ireland, Gordon Miller, general credit manager for ISP Technologies Inc., said he worries about a "snowball effect."

"Bailing out Greece is really not a whole lot of money to nations like Germany and France," said Miller. "But, perhaps one of the other big nations comes back and says, ‘we want the same thing.'" He added that all of this could significantly weaken the Euro.

Meanwhile, to the East, safety and security issues in Russia have again surged to the forefront of international news in the wake of a recent reprisal of terrorist attacks there. After relative calm for a couple of years, activity from radical Islamic militants from the Northern Caucuses provinces (Chechnya, Dagestan, etc.) has returned to the forefront in the form of subway bombings that killed 40 and injured more than 100 others in Moscow and a series of suicide bombings aimed at police in the provinces, which are located in the southeastern portion of Russia. While tragic and unsettling, growing unrest in Russia is unlikely to put a dent in the flow of business credit in any significant way.

"Anybody who is in business in Russia had to expect this and, if they didn't, shame on them," said Miller. "It's not a consistent place to do business. There will be a short time where the biz environment will be good and, all of the sudden, it's gone. People doing business there know who they're playing with and know it's a constant thing."

Still, Russia, in its relative infancy of post-Soviet Union consumerism, represents "big economic potential" for international businesses.

"There have been a lot more market capabilities and money there than they've had in the past, and I think the Russian population is looking for foreign goods," said Miller.

Brian Shappell, NACM staff writer

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