After months of wrangling and a 13-hour summit, the Hellenic nation gets its latest lifeline.
After many months of talks, talks on talks, and talks on talks on talks, eurozone finance ministers have finally approved a second bailout package for Greece.
This agreement was reached after a mammoth 13 hours of talks, beginning on Monday afternoon and finishing in the early hours of this morning.
Europe's biggest bung
Members of the European Union (EU) and International Monetary Fund (IMF) have agreed to stump up another €130 billion to stabilise the Hellenic economy. By doing this, they hope to rescue Greece, prevent contagion spreading to Ireland, Portugal and Spain, and keep the 17-member eurozone intact.
This bailout has been agreed to do two critical things for Greece. First, it allows Athens to avoid a disorderly default by meeting a €14.5 billion bond repayment due on 20 March.
Second, it aims to cut the country's debt burden to 120.5% of GDP (gross domestic product, or national output) by 2020. At present, the Greeks have a perilously high debt-to-GDP ratio of 160% (versus 63% here in the UK).
However, as you'd expect, this handout comes with some pretty stiff strings attached. The EU, IMF and European Central Bank intend to keep a close eye on Greece's national spending and promised reforms. Therefore, the deal gives these three a permanent supervisory presence in Athens.
Will this bailout succeed?
While this latest bailout reduces Greece's debts and improves its liquidity, it by no means solves the ongoing eurozone crisis.
Elsewhere, Spain and Italy still have unacceptably high levels of sovereign debt (Rome has issued close to €2 trillion of government bonds). Likewise, Portugal appears to be in the danger zone, with its 10-year bonds yielding over 12% a year (versus 2% a year for 10-year UK gilts).
What's more, after five years of recession, Greece has been forced to sign up to a strict austerity package aimed at lowering employment, pay and pensions in its bloated, runaway public sector. In addition to previous cuts already approved, Greek Prime Minister Lucas Papademos has agreed to cut another €325 million from this year's budget.
Despite €107 billion being wiped from its debt pile, these reforms will put Greece's economy under intense pressure. Hence, I expect its economy will continue to shrink for a few more years to come and, therefore, Greece will probably miss its debt-reduction target eight years hence.
These austerity reforms threaten to bring further hardship to the Greek people, making this deal very unpopular with the man on the Athens omnibus. After all, he is already fed up with government corruption, corporate cronyism and the tax-dodging elite.
Hence, this latest round of belt-tightening could well spark more demonstrations against the Greek establishment, leading to more civil unrest, rioting and arson in Athens.
No relief rally
In 2010, more than half (53%) of UK exports went to the eurozone, so it is important for Britain that our continental cousins survive and thrive. Indeed, Chancellor George Osborne remarked: "Resolving the eurozone crisis would be the biggest boost that Britain could get for the economy this year."
This news failed to produce a relief rally for the UK stock market, though. As I write, the blue-chip FTSE 100 index is down 22 points at 5,923. However, stock markets have already risen strongly across Europe in the first seven weeks of 2012, so a great deal of optimism was already baked into share prices.
Finally, there is still one big worry coming up for Greece and its creditors. Parliamentary elections in April are expected to oust much of the current political leadership. Also, there is a general rule of politics that new governments are not bound by pledges made by their opposition.
Thus, the new coalition government in Athens could well renege on the promises made by the current crop of MPs, ministers and technocrats. If so, then the eurozone could fall back into another existential crisis!
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