Banks are open in Greece today (with certain restrictions still in place) as the country tries to get back to normal after months of uncertainty around whether or not the country would remain in the Eurozone. Last week the Greek Parliament and other European Government Agencies approved the new bailout deal in exchange for further austerity measures. The question now becomes: will the Greeks comply with the burden that has been put on them? And if they do comply, what will that mean for the future of their economy? Privatization of state assets, increased taxation and pension reform highlight the list of financial reforms that must be put into place immediately for Greece to remain eligible for bailout funds from the Europeans.
Greece blinked first in the stare down with the rest of Europe and now must pay the penalties. With financial conditions tight, we think it is unlikely that the Greek economy will recover anytime soon and will struggle to pay the bills from the additional debt the country just took on. It’s not inconceivable to think that we’ll be right back here at some point in the next few years with Greece needing to restructure their debt obligations. In terms of the rest of Europe, the financial repercussions from this latest episode are likely to be limited given the small size of the Greek economy. What is important to watch is other countries in the Eurozone with heavily indebted balance sheets, such as Italy, Spain and Portugal, and how their citizens will react to the events in Greece. Any secondary effects in those countries and pushback on austerity could spell trouble…stay tuned.
Source: Financial Times, WSJ