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Euro recovers on hopes for Greek bailout plan

After a very difficult few days the euro has risen on currency markets with hopes high that a Greek bailout package will be announced in the next few days. The Greek authorities have already agreed to a number of large investment reductions amid signs that finally the situation may be coming to a head and will be sorted out in the short term.

The main problem is the Greek budget deficit which currently stands at 12.7% of gross domestic product which is more than four times that advised by the EU. However, the authorities have agreed to try to reduce this deficit ratio to 8.7% during 2010. In simple terms we will see a slashing of Greek public-sector spending and an increase in taxes such as VAT. There is no doubt that the Greek public sector is set to enter a very difficult and very demanding phase but ultimately without spending cuts the country would go under.

The very fact that investors have taken heart from moves to reduce the deficit and the likelihood of an EU bailout package has stabilised the Eurozone, at least in the short term. However, while the repercussions of the Greek problem will diminish as it is tackled head-on there are still financial issues to address in Portugal, Spain and Ireland.

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