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The Honolulu Advertiser
Posted on: Saturday, April 24, 2010

Global economy unfazed by Greece bailout

By Tom Petruno
Los Angeles Times

LOS ANGELES In Europe, the unthinkable is about to happen: The Greek government, struggling under a massive debt load, has been forced to seek a bailout from the 15 other countries that share the euro currency.

Yet world financial markets, which a few months ago shuddered at the prospect of Greece's woes fueling another crisis of confidence across the global economy, this week largely took the bailout expectations in stride.

Instead of fleeing for safety as they did in 2008 and early 2009, many investors have continued to pour money into stocks and bonds allaying fears that the fiscal crisis in Athens would be the trigger for another round of market mayhem.

Yesterday, global financial leaders declared that the world's economy is recovering faster than expected from the worst recession in decades.

Finance ministers and central bank governors of the world's 20 major economies credited the massive amounts of government stimulus that have been provided. Their joint statement did not address the Greek debt crisis directly, but it did say the countries were committed to continue efforts to ensure a sustained worldwide rebound from the recession.

Much of the credit for the resilience of the markets goes to the surprisingly robust global economic recovery, experts say.

"You look around the world and the economic news is quite good," said Ethan Harris, an economist at Bank of America Merrill Lynch in New York. "That has steadied the nerves of markets as they look at Europe."

Earlier this year, as it became more apparent that the Greek government's finances were unraveling under the weight of the country's debt load, investors began to fear a new chapter in the financial crisis that rocked the world beginning in the fall of 2008.

That triggered a sell-off in global stock markets, but most quickly bounced back as economic data continued to underpin faith in a sustainable economic rebound.

Growth has been strong enough that some countries, including Australia, India and Malaysia, have begun raising interest rates to keep inflation in check.

Europe has, to a large degree, been the odd man out.

"Europe right now is being handicapped not only by the Greek debt situation but also by expectations of weaker growth than in the U.S.," said Michael Woolfolk, a foreign-currency strategist at Bank of New York Mellon Corp.

But the contrast between the European economy and the rest of the planet also has helped to damp fears that Greece's need for a bailout has implications beyond Europe's borders at the moment.

For developed countries including the U.S., Britain and Japan, however, Greece is a warning of what could await governments that have gone deep into debt to pull their economies out of the worst recession since the Great Depression.

The Associated Press contributed to this report.