By: Dr. Mike Campbell
The concept of throwing Greece to the wolves and allowing it to endure a disorderly default preparatory to being slung out of the Euro was undoubtedly popular in certain quarters, but it was never going to happen. The dangers of such a reckless approach were just too great for such a risk to be taken in terms of the dangers to Spain and Italy; loss of confidence in the wider EU and its banking institutions; and unforeseeable wider area affects in an already fragile global economy. If Greece left the Euro, it would have woken to an even worse nightmare than its enduring right now. The new Greek currency would instantly, and heavily, devalue which would be fine for debt that had been converted into it (since Greece could use its foreign currency reserves to then pay it down), but all imports would become very much more expensive and debts of individuals from external sources, in Euros, would also soar.
It will come as no surprise to observers of the economic scene to learn that a second EU/IMF bailout for Greece, worth €130 billion, was finalised last night, gaining the approval of Eurozone finance ministers. The anger of Greece’s partners could be seen in the demand that cast iron assurances that the agreement would survive a change of government in Greece and that agreed reforms be fully implemented. They must also accept the “enhanced and permanent” presence of EU monitors who will be tasked with overseeing the nation’s economic management. The deal still requires ratification in Greece, Germany and the Netherlands before it can come into force.
Greece’s debt mountain is now more than 160% of the country’s GDP; the deal envisages that this level must fall to 120% of GDP by 2020; it will entail further austerity measures for Greece and various economic reforms which will put a strain on civil society.
The deal will also involve creditors in a debt-swap which will involve a 53.5% loss on the value of their bonds.