Greece is likely to get an additional 8bn euros ($11bn) in bailout money, most likely by early November, according to the EU, IMF, and European Central Bank. Nearly seventy-five percent of this cash will come from EU member states, and the remainder from the IMF.
The objectives for this money are to implement economic and financial reforms to stabilize this country’s economy. These reforms include ensuring that the privatization fund remains independent, ending sector-wide collective labour agreements, and negotiating pay and terms at a company-level rather than across whole industries.
However, this bailout – the sixth such distribution of aid – comes despite the financial inspectors’ conclusion that Greece’s fiscal target for 2011 was not achievable because of both a further drop in GDP and slippages in the implementation of some of the agreed measures.
This bailout comes as other countries in the EU are facing severe economic hardship. With Greece getting so much financial support, will other countries get similar assistance? How will these bailouts be sustained?
Source: http://www.bbc.co.uk/news/business-1529796
The problem with the European bailout of Greece is that it exacerbates Greece’s problem. Greece is in this mess because borrowing was too easy in the early 2000’s, and it was able to borrow heavily to finance its public sector. Now, Greece is to receive an 8 billion Euro bailout from the EU and IMF, despite the fact that it has not met its financial reform targets. Greece will, of course, eventually be expected to repay this 8 billion Euro loan. Thus, the EU has effectively loaned an additional 8 billion Euro to a country that already has a borrowing problem! I don’t think it makes sense to feed Greece’s borrowing addiction by allowing it to borrow more.
It seems as though the problems in Greece just won’t go away. Every few months there is talk about the government running out of money, the EU threatening to cut off aid if an austerity package isn’t passed, and rioting in the streets if it is passed. Greece has two things going in its favor, they were the first ones to get into this mess and there is a line forming behind them. With countries like Portugal, Ireland, Italy, and Spain teetering on financial instability, everyone is paying very close attention to how the EU responds to Greece. One false move in Athens could be felt all over the Euro Zone. Keep in mind, all of the problems so far have come in terms of getting Greece the money. Makes you wonder what will happen when the “loans” come due.