By Bob Negele
Finance ministers from the European Union and the International Monetary Fund (IMF) have reached a deal on the terms of the Greek bailout.
According to a recent article in the New York Times, the parties reached a deal that strikes a compromise on Greece and will help avoid bankruptcy. The main negotiations revolved around the differences between countries that were owed money by Greece and those that weren't. The countries that are owed money (such as Germany and the Netherlands) were opposed to plans that forgave some of the debt owed by Greece.
Experts agree that, almost regardless of the terms, the deal is good because it increases certainty in the area. “The decisions will certainly reduce the uncertainty and strengthen confidence in Europe and Greece,” Mario Draghi, said president of the European Central Bank.
The financial debacle in Greece really reached a new level back in June, when creditors froze nearly $170 billion USD in aid after determining that Greece failed to meet the conditions of its second bailout. Ever since then, “Greece has fully delivered its part of the agreement, so we expect our partners to deliver their part, too,” said Yannis Stournaras, Greek Finance minister.
The Greek debt is now estimated at a staggering 175 percent of Gross Domestic Product, or GDP. Part of the most recent financial plan is to have Greece’s debt substantially lower than 110 percent of GDP by 2022.
GDP is a monetary value for all the goods and services produced in a country over a given time span. If a country is spending more than its GDP, it will run into a deficit.
In Greece’s case, a lot of the talks were focused around how quickly the struggling country would be able to grow its economy. In order to better manage its debt situation, Greece needs to “grow its economy, lure investors, pay down its towering debt and return to the markets to borrow money once aid programs expire later this decade.”
For Greece to hit these goals, it is going to have to keep its social problems under control- which have been highlighted during the financial crisis. The social problems are expected to get more severe if the countries unemployment continues to climb.
The agreement reached will cause some more money to be shifted to Greece. This is not an easy plan to sell to several of the countries that were part of the deal. This is true, “particularly [in] Germany, where transferring more wealth to the poorer-performing economies of Southern Europe is politically risky, particularly as Chancellor Angela Merkel prepares for a re-election fight next year.”
At least for now, however, political concerns have been set aside and Greece has a path towards financial stability.