Greece faces challenges
Laaska News Feb. 21, 2012
Economists say Greece faces a number of challenges despite the agreement on a second bailout to help the country avoid default.
A short-term issue is whether the country can implement austerity measures.
Greece will hold a general election as early as April, and may elect a new administration. But the government may have difficulty carrying out immensely unpopular stern measures, as anger is already mounting amid the country’s 19-percent jobless rate.
A long-term issue is how to develop the country’s economy.
Greece’s economy has been shrinking since 2008. The EU’s statistical office says the country’s gross domestic product for October to December last year was minus 7 percent. The country’s economic growth is expected to shrink this year for a 5th year in a row.
Economists say fiscal reconstruction efforts may not go as planned if the economy continues to shrink.
Greece has accepted its lenders’ demand to lower its private-sector minimum wage to boost its international competitiveness. But experts say whether Greece can turn around its economy is unclear, as the country has limited options amid austerity measures.
IMF chief calls for steady Greece bailout
The International Monetary Fund chief has welcomed the measures worked out by the Euro Group.
Christine Lagarde, who also took part in the negotiations, told reporters on Tuesday that the deal will create the space needed to secure improvements in debt sustainability and competitiveness in Greece.
Lagarde also said the IMF will hold a board meeting in March to discuss implementing the measures after making sure that Greece is taking the necessary steps.
Greek Prime Minister Lucas Papademos said he’s very happy with the outcome, calling the day a historic one for Greece’s economy.
Papademos added that his government will keep its promise to carry out the austerity measures, including fiscal reconstruction and structural reforms, in exchange for the bailout.
Asked if the latest agreement could be revised after the Greek general election slated for April, he said he’s sure the promise will be kept even after the vote.
Eurozone members agree on Greek bailout
The eurozone finance ministers have finally agreed on extending a second bailout package to Greece, after a marathon meeting that lasted more than 13 hours.
With the additional funds, Greece should be able to avoid defaulting on its debt payments next month.
Eurogroup President Jean-Claude Juncker said this bailout would give Greece the time needed to follow a credible path of physical consolidation and structural reforms. He said it would allow a return to sustainable growth and employment while preserving the financial stability in Greece and in the eurozone as a whole.
The ministers agreed to offer Greece the 130 billion-euro package as additional financial aid.
They also agreed to ask private banks to accept cuts of over 53 percent on the principle of their holdings of Greek government bonds.
There was a consensus that eurozone central banks, as well as the European Central Bank, will have to write-off losses on their holdings of Greek debt.
The additional measures are required because Greece’s fiscal health has worsened more than expected.
Another measure the ministers agreed on was for a mechanism to ensure Greece follows through on its promised fiscal reforms.
Steps to be taken include increased monitoring of the country’s fiscal health, as well as the joint management of bailout funds with the EU, instead of giving the fund directly to the Greek government.