A deal was reached earlier this morning on additional financial aid to Greece in exchange for tough austerity measures such as pension reform and additional taxation. Greece must also hand over certain public assets for privatization, the proceeds of which will be used for bank recapitalization and debt repayment. Ironically, the deal that was agreed to is harsher than the deal the Greek people voted to reject just a week ago. The Greeks must implement the list of economic pledges and clear the deal through the Greek Parliament by Wednesday, which is a tight timeline for such drastic overhauls. Financial markets are responding favorably to the deal with most equity markets around the world trading higher. The question now becomes, will the Greeks pass the deal, and if they do, what becomes of their economy moving forward? Many smart economists are predicting a long period of economic malaise for Greece due to the high debt burden and elevated level of taxation. So, while the near-term concerns may be winding down if the deal is approved, the long-term concerns may be just beginning.
Source: Financial Times, WSJ