Greece and finance ministers from the other 16 euro zone countries agreed to terms for Greece to receive a 130 billion euro ($172 billion) aid package that they hope will help Greece to avoid a default on its burdensome debt.
Although the latest deal between Greece and the finance ministers is being hailed by some as a success, the deal still faces many obstacles before and even after it is implemented.
The aid package must first be approved by the parliaments of several European countries before it becomes official. There’s no guarantee that the aid package will make it through the parliaments of countries like Germany, Finland and the Netherlands that have become increasingly frustrated with the Greeks.
Opposition to Greek aid has been growing in many of these countries, as their citizens feel that they are being forced to pay for problems that Greece brought upon itself. It hasn’t helped matters that the more financial aid Greece receives, the more concessions it asks for from its creditors.
Although many of the participants in the negotiations between Greece and the euro zone finance ministers said the deal was the successful outcome of cooperation between the two sides, the deal showed that Greece will continue to seek more concessions from creditors, while at the same time asking them for more money.
Private sector bond holders will now have to take losses of 53.5 percent of their bonds’ nominal value. That’s worse than the previous amount of 50 percent that they had agreed to in earlier talks.
It’s not yet clear how many bondholders will actually accept the deal but Greek politicians are talking about passing a law that would force bondholders to take the loss even if they don’t agree to the deal. Although this could help Greece avoid a large scale default, credit rating agencies have warned before that forcing losses upon bondholders could be seen as a partial default.
The private sector wasn’t alone in having to sweeten the deal for Greece. Greece’s euro zone creditor countries are also being asked to grant Greece further concessions, such as lowering the interest rates on the previous bailout package. The euro zone’s central banks and the European Central Bank (ECB) are also being asked to give up profits on Greek debt that they were entitled too.
Although Greece was able to get a lot out of the latest deal with its creditors, the creditors also put more restrictions on aid to Greece. The finance ministers have grown wary of Greece repeatedly failing to keep promises that it made in previous bailout negotiations.
Before they are willing to hand over any more aid to Greece, the finance ministers insisted that Greece will have to agree to unprecedented external over site of its finances and would have to implement the previously agreed to structural reforms and spending cuts. They also said that Greece must pass a controversial law that gives legal priority to paying its creditors before paying for government services.
This would mean that if Greece got into deeper financial trouble, it would be forced to pay European banks before paying the salaries of government workers like teachers and police.
Although the finance ministers were trying to prevent Greece from breaking any future promises, they might have doomed Greece to default by demanding to be given priority over the Greek people. Earlier rounds of austerity measures have been widely unpopular in Greece, leading to several nationwide strikes and violent protests.
The Greek people haven’t seen any improvement to their daily lives because of the austerity measures, which have hurt Greece’s economy more than helped it. The combination of spending cuts and tax increases have pushed Greece deeper into a recession that has lasted for years and shows no sign of ending soon.
The government parties that have backed the the latest bailout package are losing the support of the Greek people, while the parties that oppose the package are seeing their popularity rise. It’s quite possible that the next Greek government that is elected in the coming elections will alter the terms of the deal or even roll back many of the agreed upon austerity measures.
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