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By FXCompass — Monday, 15 February 2010

It’s been since last December that Greece started threatening the rest of Europe. Fear spread out quickly when the deficit came out above 12%, while most expected it to remain below 10%. And the extent of the problem remains unclear as the real deficit stays hidden underneath a complex financial structure put in place by bankers years ago.

Two months later, the situation is no better. The euro has lost almost all gains it managed to make over the last year and it shows no sign of a stopping decline, when the nearest support level is still far down.

Now at 12.7% of GDP, the Greek problem could spill over the eurozone if the country defaults on its loan re-payments. The only solution is to bring it back to a manageable level.

The Greek government proposed an ambitious objective to cut its deficit by 4% this year, down to 8.7%. But the external help required to do that is anything but secured. The recent eurozone leaders meeting in Brussels tossed out the possibility of a EU bailout plan and healthier countries like Germany weren’t ready to issue a special loan.

As a result, investors’ confidence about the euro is even lower and the Greek cloud continues to darken over Europe.

This situation reminds us the recent Dubai debt issue, which even today isn’t resolved — Dubai World is still struggling to reach a rescheduling agreement with its creditor banks on a $22 billion debt.

If a rescue package isn’t found soon, the euro could very well hit 1.3000. In the worst case scenario, the problem could hit other fragile Euro economies such as Spain or Portugal.