Greece's economy is a "sinking ship," the country's prime minister said today. The prime minister! I guess that's what you have to do when you're formally requesting a 45 billion euro ($60 billion) bailout from the EU and the IMF — the first bailout for any country using the euro.
The request is no surprise, after all that bad news yesterday — another upward revision of the country's budget deficit, another ratings downgrade, a rout in the bond markets.
The question now is what comes next.
The EU's piece of the bailout package has to be approved by individual governments, and the bailout is unpopular in Germany, a key contributor. Greece needs at least some of the money soon, so it can make an 8.5 billion euro debt payment that's due on May 19.
Even if this bailout comes through in time, Greece may need more money. The country has 39 billion euro in debt coming due in the next 12 months, and will need to borrow more to cover ongoing deficit spending, Reuters says.
The Economist estimates that Greece will run up an additional 67 billion euro in debt by 2014, besides needing to pay off existing debts. That could wind up being financed by a series of subsidized loans from the EU; the economist calls it a "fiscal drip-feed."
Meanwhile, the troubles in Greece are spilling over to other EU countries. Investors demanded sharply higher yields yesterday on loans to Spain, Portugal and Ireland. Higher costs on sovereign debt could cause troubles for banks in those countries, economists Peter Boone and Simon Johnson write at the Baseline Scenario.
Boone and Johnson estimate that Greece will need 150 billion euro over three years to refinance its debts — and Portugal will need 100 billion. Even that might not be enough to restore confidence to the markets.
"Greek strikes, a weak Portuguese government deeply in denial, and German hatred for bailouts, all make a path to restore confidence very difficult," they write.