Greece was able to finalize a deal with Germany and the IMF regarding its heavy €110-billion ($150-billion) debt. The EU will be providing €80 billion while the IMF will be providing the additional €30 billion. Prime Minister George Papandreou believes this bailout funding will save Greece, but its citizens are thinking otherwise. Globe and Mail reports that as a result of this deal there will be a public sector wage freeze until 2014, no salary bonuses, a sin tax increase, and a boost in the value added tax to 23 per cent from 21 per cent. We’re not sure this aid fixes the fundamentals, and it’s forcing the wrong people to pay for it.
Rough Waves Ahead
Greece has some turbulent times ahead of them as the government works hard to squeeze every dime out of the public sector as possible. Meanwhile, the country already battles high tax evasion, corruption, and a broken system. It will become even harder to enforce the promises they have made to the European Union because of their low-morale public servants. Most important, the biggest thing has yet to be addressed: why isn’t each and every individual and institution that participated or overlooked Greece’s cooked accounting being held accountable?
The issues that are affecting Greece aren’t immune to many other countries around the world. A lot of their problems are similar to many economies, including the US:
• The public sector is paying for the unchecked greed of the private sector.
• These corrupt individuals and institutions are still operating.
• Nothing has been done about the root of the corruption.
• They’re attempting to fix their debt with more debt.
• The IMF, rating agencies, and other greedy financial institutions are knee deep in structuring this debt in their favor.
In a few years, if these issues aren’t corrected, Greece will be going down this road again.
There are a few possibilities here. The best-case scenario is that Greece gets itself together and repays its debt, parting with little ownership of its country. The worst-case scenario is that Greece defaults eventually, giving the European Union and the IMF grounds for complete control over it. For a Prime Minister that proclaimed that “[he has] done and will do everything so the country does not go bankrupt,” he should have worked harder and earlier. Prevention is much better than reaction.
While one certainly hopes for the best, these are concerns that shouldn’t go unaddressed. Another concern is that Greece may be subject to a deeper recession as a result of deep budget cuts. If that happens, it will also cause a reduction in federal taxes causing debt repayment issues. Basically, Greece along with the rest of the world has many economic obstacles ahead. We certainly wouldn’t recommend buying up Greek bonds, regardless of what rating they’re given. As they say, “it ain’t over til it’s over”.
*Image courtesy of Street Insider.
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