The Greek Depression

Alicia Powe | February 23, 2012
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Eurozone finance ministers agreed to a $172 billion rescue for Greece on Tuesday, after 13 hours of talks, to avoid an imminent bankruptcy after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

Finance ministers finalized measures to cut Athens' debt to 120.5 percent of gross domestic product by 2020, securing a second rescue in less than two years in time for a major bond repayment due in March.


The object of the bail out is to stabilize Greece's debt at 120 percent of GDP by 2020.
 More than $25 billion of the package is intended to help modernize Greek institutions, stimulate growth and do something about the country's 21 percent unemployment rate. 


"It is maybe the most important (deal) in Greece's post-war history,"said Greek Finance Minister Evangelos Venizelos in Athens.

Greece has no real independence when it comes to fiscal policy any more and will be placed under permanent surveillance by an increased European presence on the ground.  It will have to deposit funds to service its debt in a special account to guarantee repayments and will struggle for years without economic growth.

The country is experiencing the worst recession for a developed nation in modern history, has the worst unemployment rate of any developed country and is suffering from massive wage deflation. Unemployment is exceeds 20 percent in Greece as it's private sector is in a free fall.

 This deal may  delay catastrophic capital flight from Greece,  yet the $170 billion plan to save a country worth $220 billion, and declining, is doomed to fail.

Greek public are riddled with a sense of the hopelessness and question the strings attached to the aid as trade unionists, communists and pensioners angry at spending cuts marched through the streets of central Athens Wednesday.


If Greece falls, it will have a catastrophic domino effect on on other debtors like Spain, Italy, Portugal and the rest of  the entire European economy. If the plan works it could become a model for the other debt-stricken European nations.
 .

The International Monetary Fund is the last of several organizations that must sign off before Greece receives more international funding and fund board members have become increasingly concerned about the level of risk that lending to Europe poses to the agency.

The IMF
contributed far more  than what it has loaned to other nations in crisis, contributing about a quarter of the initial $140 billion bailout approved for Greece in May 2010. 

U.S. taxpayers fund more than 17 percent of  the IMF, but complex banking policies make it hard to discern exactly whose money funded which bail out.

Although $25 billion dollars may not seem much to Americans, whose government borrows almost $25 billion a week, that is comparatively  much more money for a country with a population about the size of Ohio's.   

Greece, the perfect example of an entitlement state, is in flames in repercussion of the democratic socialist experiment and piling on
debt.

Americans are already feeling the effects of out-of -control government spending, a downgraded credit rating and a fragile economy and should regard what is happening in Europe as a warning of what happens when state provides for the middle class.

 

 

 

 

 

 

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