Greece Agrees to Bailout Package, EURO Rebounds

greeceThe agreement to approve Greece’s bailout package has brought relief and helped the Euro zone rebound. The bailout package for Greece has been one of the most hotly discussed and argued topics within the European Union for the past few weeks. With Greece threatening to exit the Euro zone with the support of Russia and China, tensions were escalating fast in the region and becoming amplified by fears of financial depression hitting Greece and engulfing the entire Euro zone. The Eurogroup meeting held on Friday which approved the proposal for the bailout comes as a huge relief for everyone in the region – the Greeks, the European Union and overall, the global economy.

There have been various allegations and suspicions about Greece and an obvious lack of trust among the other countries in the European Union. These countries are effectively the ones that Greece owes a staggering debt of nearly 400 Billion Euros or 0.4 Trillion Euros. Greece is one of the three countries in the Euro zone which has received a bailout package to prevent their economy from collapsing or hitting an economic depression. The other two nations who received a similar bailout package are Ireland and Portugal. The Greek economy has borrowed heavily from European Union members including France, Germany, and the UK. It owes close to Six Billion Euros in debt to the United States as well.

Since the size of the Greek economy is smaller compared to its EU counterparts such as Germany, France, and the UK, if Greece defaults on the payments for its debts, the effects would be probably be absorbed by the Euro zone. The greater threat is the spread of this tendency among other economies in the European Union and around the world. This could result in a disaster for the world economy and could yield a level of havoc that could possibly be worse than the Great Depression witnessed in 1929.

greeceGreece’s economy presently hangs in the balance as this coming Monday, if the Euro Zone doesn’t like its list of reforms, then, there simply may be no deal. The European Union still has to sign off on Greece’s list of reforms. The end of April is the deadline for its creditors to approve the new policy measures, the three primary creditors being: The European Commission, The European Central Bank, and The International Monetary Fund. The bailout arrangement of Greece’s economy is considered to be critical in order for the Euro zone to witness any sort of rebound.

Greece’s proposal for an extension of its bailout package ending on February 28 was tabled on February 19 and promptly rejected by Germany. On Friday, February 20, Greece offered another deal to Eurogroup finance ministers which will extend Greece’s bailout another four months. An agreement was reached to end the impasse between the European Union members and Greece.

Due to Greece’s extension of the bailout, The Dow Jones industrial average and the S&P 500-stock index closed at record highs. Investors were initially concerned that Greece would not reach an agreement and instead would fall into bankruptcy, leading to an eventual withdrawal from the Euro zone itself. While the extension of the bailout was reached after the close of European markets, London’s FTSE 100 and Germany’s DAX both closed gaining about 0.4%.

Flexibility of labor laws, tighter tax collection, sparse pension benefits, and weeding out corruption could be some of the economic reforms that Greece will make Monday, February 23. Dominant European Union members like Germany, France, and the UK will have the final say in the agreement.

By Ankur Sinha

Sources:

BBC

The Atlantic

SFGate

Photo by EU Council Eurozone – License

Your Thoughts?