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Morning Market Roundup: Greek EU Exit, Home Prices Rise in U.S. Cities, Spain's in Bad Shape

Here’s what’s important in the business world this morning:

Greece: As Greece creaks under its untenable debt and a shrinking economy, the possibility that it could stop using the euro is becoming increasingly likely. The effects of such a move would be as quick as they would be brutal for ordinary Greeks, who would essentially take a 50-percent pay cut just as prices soar.

No other country has ever left the 17-country eurozone before and there are no procedures in the EU's vast rulebook that would push any country out. But one fear is that the Greeks could decide to vote in an anti-austerity government on June 17 that may then decide to renege on the terms of the multi-billion-euro bailout which has been keeping the country afloat. Greece could be then forced into a messy exit from the euro bloc. It would then have no choice but to start printing its own currency -- the drachma -- to pay its way.

This would hit the Greek people hard -- and quickly. The new drachma would lose half or more of its value relative to the euro. This would drive up inflation and sap the purchasing power of the average Greek. At the same time, the country's economic output would drop, putting more people out of work where one in five is already unemployed. The prices of imported goods would skyrocket, putting them out of reach for many.

With all the pain a drachma-based economy would induce, IOBE head of research Aggelos Tsakanikas foresees an increase in crime as people struggle to pay bills. "We won't see tanks in the streets and violence, we won't see people starving in the streets, but crime could very well rise," he said.

"Desperate people do desperate things, but I can't predict what will happen," he said. "There will be rage and people will want to vent it but it may not be done in a civilized way."

U.S. Home Prices: Home prices rose in March from February in most major U.S. cities for the first time in seven months. The increase is the latest evidence of a slow recovery taking shape in the troubled housing market.

The Standard & Poor's/Case-Shiller home price index shows that prices increased in 12 of the 20 cities it tracks.

Three of the weakest markets reported signs of improvement. Prices increased in Tampa and Miami, while prices in Las Vegas were unchanged.

The biggest month-over-month increases were in Phoenix, Seattle and Dallas. Prices dropped sharply in Detroit, Chicago and Atlanta.

The increases partly reflect the beginning of the spring selling season. The month-to-month prices aren't adjusted for seasonal factors.

The overall index of 20 cities was essentially unchanged in March, after falling 0.8 percent in February.

Spain: Concerns that Spain's ailing banking sector might worsen the European debt crisis weighed on markets Tuesday, though Asian indexes eked out gains on hopes that China will take new measures to boost its economy.

Spain's banks are sitting on massive amounts of soured investments in the country's imploded real estate market. That has led to the recent nationalization of Bankia, the country's fourth-largest lender, which revealed last week it needed more money than expected - (EURO)19 billion ($23.8 billion) - in state aid to shore itself up.

Investors fear that the Spanish government, which is already under pressure to lower its debts at a time of recession and record-high unemployment, will be overwhelmed by the cost of saving the country's banking sector.

That has magnified worries of a possible debt implosion in Europe's weaker economies - starting with Greece, whose future in the euro currency union could hinge on the results of a June 17 election. If Greeks vote for parties that support the country's bailout terms, ensuring a continued flow of rescue loans, the country will hope to stay in the eurozone.

Furthermore, a record drop in retail sales added to Spain's economic woes on Tuesday as the government struggled to sustain confidence in the crippled banking industry and investors remained wary of the country's ability to manage its debt.

Retail sales dropped 9.8 percent in the year to April on a seasonally-adjusted basis as the country battled against its second recession in three years and a 24.4 percent jobless rate that is expected to rise. The fall in sales was the 22nd straight monthly decline, and was more than double the 3.8 percent fall posted in March, the National Statistics Institute said Tuesday.

A gloomy Bank of Spain report heaped more bad news on the government. The central bank said it predicts the economy will keep shrinking at least until the end of June, after contracting 0.3 percent in the first quarter. The government has predicted a 1.7 percent contraction for the whole of 2012.

The Associated Press contributed to this report.

One last thing…
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