In an effort to finally pull Greece out of its financial slump, a deal made Tuesday requires the country to make domestic economic changes in return for much-needed bailout payments. Greece’s international creditors agree to financially help Greece on the condition that they raise taxes and lower social spending and pensions.
The over €7 billion of payments attempt to decrease Greece’s current debt of approximately €300 billion. Further discussions will be held on the extent to which other countries can continue to help Greece. This deal, which took months to solidify, is only the beginning.
The International Monetary Fund is adamant about increasing efforts to aid Greece. However, several European Union member countries have strong doubts. Economic power Germany is especially averse to further Greek bailout plans.
Three of Europe’s greatest economic powers, Germany, France, and Britain, may see their upcoming elections affected by the decision. Efforts by European officials to direct popularity away from far-right parties could be thwarted by the economic change.
Terms for Bailouts
The agreement requires Greece to cut pension payouts, raise taxes, and change its energy and labor markets. These terms emerged after a 12-hour discussion in Athens according to the Greek finance minister, Euclid Tsakalotos. The results are still subject to approval by the Greek Parliament and the eurozone finance ministers.
Athens stated that they will lower the income threshold for tax payments in order to increase tax receipts. Furthermore, through continued pension and benefit cuts, Greece hopes to raise gross domestic product by 2 percent.
Another major change is in the ability of businesses to fire employees. Companies will face less restrictions on the removal of inefficient workers as an effort to increase the competition of the labor market.
The European commissioner of economic affairs, Pierre Moscovici, expressed positive feelings towards the finished deal. Although debate came to multiple near stand stills over Greece’s potential for efficient improvement, most leaders feel positive towards the finished product.
A History of Debt
One of the oldest human civilizations, Greece’s past is peppered with financial ups and downs. The country’s current debt arose after the global economic crisis in 2007 and 2008. Since that time, the country stayed afloat through multiple bailouts.
With a nearly 25 percent unemployment rate and a shrinking economy change cannot come soon enough. Since the financial crisis, the economy decreased by a fifth and many fear that this will continue.
The current debt is shockingly almost 180 percent of the gross domestic product. Athens has already enacted measures to reduce this percentage however, the new deal will hopefully be the tipping point for change.
The repeated need to assist Greece financially caused contention among the economically stronger European states and the International Monetary Fund. Economic inequality within the EU has encouraged widespread dissatisfaction.
A Potential for Change
Under the current Prime Minister, Alexis Tsipras, the changes will likely pass through parliament. However, his control is shaky as popularity polls reveal a decrease in support. Furthermore, Tsipras’ leftist government retains only a three-seat majority in the chamber of 300 seats.
The legislation is required to be drafted and passed through parliament before May 22 when the eurozone finance ministers will meet. The ministers, called the Eurogroup, are almost certain to approve debt bailouts to Athens in July as long as all of the requirements are met.
Discussions will also be held over how to target Greece’s budget surplus and how to further attack their debt. Plans will hopefully be drafted to further alleviate Greece’s financial burden.
Although the past decade was financially difficult for the country, the future has a potential to be bright. The strengthening of Greece will strengthen the Euro as a whole and hopefully resolve issues of inequality.