FEATURED | Third Time Lucky: Greece’s Rescue Package by Deena Zaidi
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FEATURED | Third Time Lucky: Greece’s Rescue Package by Deena Zaidi

FEATURED | Third Time Lucky: Greece’s Rescue Package by Deena Zaidi

By Deena Zaidi

Greece has been in news ever since it joined Eurozone as the 12th member. The country has been struggling hard to meet the requirements needed to be a member in the Eurozone. In 2004, Greece misrepresented its budget figures and many critics saw that had the data been genuine, it might not have been a part of the common currency union. While there are many debates about the member countries that comprise the common Euro union, representation of weaker economies have made entire Eurozone suffer financially. On the other hand, stronger economies have not dodged from providing generous bailouts to its failing member economies within the zone. Even though a lot of financial help came from international organizations like IMF and World Bank, the indebted member countries had to pay a price for bailouts: adherence to planned austerity measures. Eurozone’s rescue plan is announced when Greece is not only facing tough financial times but also witnessing internal political instability.

Had Greece not been part of the Eurozone, the picture we see now of Greece might have looked very different. The country would be using its own currency, the drachma and balanced out its own export and imports accordingly. Protecting its own economy would have been slightly easier since it would not be tied to other economies through a single currency. According to Bloomberg, Greek unemployment has doubled since it joined the Eurozone, while Germany halved its unemployment rate. Moreover, following the 2008 financial crisis in the US, Greece’s economy got smaller by 25% since 2009.

Figures show that even though much of the rescue support is coming from Germany, since it is by far the strongest in the Eurozone, it surely has benefitted in certain sections after the formation of the Eurozone. But recently, the shifting politics in Germany shows that even though 454 German MPs have approved of the Greek bailout, 113 were against it while 18 abstained. Some part of Germany seems a bit hesitant about the third bailout and does not approve of giving extra support to Greece. The €86 billion bailout plan is Greece’s third bailout in the last five years with Spain, Estonia and Austria approving the bailout package.

Even though likely talks of Grexit (Greece Exit) were making news early this year, Eurozone has definitely not avoided itself from holding talks and rescuing its member countries time and again. The German Finance Minister is sure that not lending support and giving Greece another chance would have been ‘irresponsible” on their part. Interestingly, the bailout approval comes at a time when a press release by IMF head, Ms. Christine Lagarde stated, “Greece’s debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own.” In an interview with CNBC, Volker Wieland, a member of the German Council of Economic Experts and chair of the Institute for Monetary Theory and Policy at Goethe University, said that the cost of debt for Greece is very low simply because much of the interest and repayment has already been postponed. The only debt that remains expensive, besides the short-term bills, was the one it owed to the IMF. This is probably one reason that the IMF questioned the ability of Greece to deliver on bailout terms and even cautioned Eurozone to ‘commit to debt restructuring to ensure that the program will work’. The international organization is of the opinion that Greece will need more debt restructuring in the near future. In return of the rescue bailout plan, Greece has to ensure steep budget cuts and strict policy changes. In exchange for the bailout, Greece has also agreed to sell 14 regional airports to Fraport Slentel, a top German airport operator. It is the first privatization deal under the new government and the biggest privatization deal in Greece since beginning of the crisis and the bailout programs in 2010.

According to the Wall Street Journal, the three-page document prepared by European institutions, fails to address the consequences incase Greece failed to implement the bailout plan. Additionally, the document highlights “serious concerns” about Greece’s ability to repay back what it owed to its creditors. While Eurozone authorities would like IMF to get involved in the talks regarding the rescue plan, the international organization does not plan to do so until October this year. German Finance Minister Wolfgang Schäuble said that there was not "the slightest doubt" that the IMF would lend their support in October given that Lagarde endorsed the bailout now.

In order to remain in the Eurozone, Greece would need to take steps to clear off its debts but more importantly; it needs to do this to restore the faith and confidence of its people in the Greek financial system. 

About The Author:

Deena Zaidi is the chief writer and owner of the economic website Financial Keyhole