The Greek bailout might only offer brief respite

(source: evenkeelmedia.com)

Last week, Europe contributed to the biggest public debt-restructuring plan since the Greek post-war years.

Following the financial crisis of 2008, during which Greece almost went bankrupt due to a lack of funds to pay back its debts, private investors have agreed to shrink the country's public debt.

More than 107 billion euros will be subtracted from the total debt figure of 206 billion euros worth of bonds held by private investors. This restructuring will allow the country to benefit from a second international aid program worth 130 billion euros from the euro zone. 

This has been great news for the Greek financial minister, Evangelos Venizelos, who considers the country to be recovering from rather difficult years.

However, some remain very pessimistic about Greece's future, since there are still many issues that the country needs to tackle.

A return to sustainable growth?

                           

The Greek economy may face some difficulties returning to sustainable growth, which may make the government debt burden unmanageable. In fact, GDP has contracted 15% on average since 2008. Moreover, 10% of jobs have disappeared and more than half of young people are unemployed.

Once thing is certain, austerity measures, that the country has been forced to adopt in exchange for international support, are not the answer for Greek citizens looking to get their jobs back. It is clear that austerity measures will lead to further recession.

Consequently, the social situation will deteriorate if unemployment continues to grow in a country fond of protests and demonstrations. 

We can hope that the Greek elections on the 29^th of April will help improve the country's financial situation. It goes without saying that the government risks becoming a huge target in the eyes of the public if supporters demand new sacrifices in light of quarterly inspections.  

Therefore, if Greece is unable to comply with the time limits set for the repayment of its loans, there is a possibility that debt levels will return to their starting point. We should be prepared for a much more severe restructuring process at some point in the future, or even an exit by Greece from the euro zone over coming months.

What can we do?

The participation of all public investors would be the only way to significantly reduce the level of debt. However, many investors are reluctant to commit to this given the sharp increase in default risk. This is why the government has recently applied collective action clauses (CACs), to force backers to exchange their bonds for new ones worth half the face value. Obviously, this measure has angered some creditors and a case could be brought to the European Court of Human Rights, using treaties protecting investments concluded between Greece and other countries.

What can Greece do?

The restructure does not address Greece's uncompetitiveness. They need a better fiscal administration, a better system preventing corruption, they need to eliminate pensions, and liberalise the economy. Thus, a close eye on financial statistics and economic government indicators is vital in the next few months. 

(source:toonpool.com)