{"id":409,"date":"2010-05-03T09:34:00","date_gmt":"2010-05-03T13:34:00","guid":{"rendered":"http:\/\/www.intuitiveinvestor.com\/web\/?p=409"},"modified":"2018-08-19T10:15:25","modified_gmt":"2018-08-19T14:15:25","slug":"the-deal-to-save-greece","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/05\/03\/the-deal-to-save-greece\/","title":{"rendered":"The deal to save Greece"},"content":{"rendered":"

Over the weekend Greece, the International Monetary Fund and the European Union agreed to a bailout plan for the Greeks.\u00a0 Here are some of the details:<\/span><\/p>\n

* The Greek government has agreed to new budget austerity measures.\u00a0 The goal is to cut the national budget deficit from 13.6% of GDP in 2009 to less than 3.0% of GDP in 2014.\u00a0 The cuts necessary to get the budget to this level are worth $40 billion and include…<\/span><\/p>\n

–\u00a0public wages and pensions are held fixed for three years<\/span>
\n–\u00a0value added taxes (VAT) on alcohol, fuel and tobacco will go up 10%<\/span>
\n–\u00a0an increase in the VAT from 21% to 25% on every good sold in Greece<\/span>
\n–\u00a0new taxes on business – the amount is not specified<\/span>
\n–\u00a0taxes on illegal construction<\/span>
\n–\u00a0an increase of the retirement age for public employees from 61 to 67<\/span><\/p>\n

*\u00a0Finance ministers of the member states of the EU now must approve the Greek budgetary cuts in order for the IMF and EU aid package to be released.\u00a0 These monies amount to approximately $159 billion (!)\u00a0to be awarded over the course of several years.<\/span><\/p>\n

What is the likely affect on Greece?\u00a0 Well the first thing is that the budget cuts are to be made law when its parliament meets on May 7.\u00a0 Over the last several years there has been intense and violent\u00a0rioting in Greece for budgetary cuts that were for far less money.\u00a0 So it seems inevitable that Athens is going to witness numerous protests over the coming months.\u00a0 In turn, this will deeply affect tourism which is around 15% of Greek GDP.\u00a0 Lower revenues from tourism will, in turn, make it even more difficult for Greece financially and may lead to them failing to achieve budgetary milestones.\u00a0 Further, this may bring the Greek government down which would again throw the Eurozone<\/span> into paroxysms.\u00a0 If it doesn’t bring the government of Greece down, the Greek’s, already in deep recession, will still see a deepening recession because public sector spending is a giant proportion of Greek GDP.\u00a0 Additional austerity measures are nearly guaranteed to deepen Greece’s recession.\u00a0 Thus, it is likely that Greece misses budgetary milestones.\u00a0 What will the EU do then?\u00a0 Who knows.<\/span><\/p>\n

Certain other\u00a0nations are more affected by this news than others.\u00a0 For example, Germany, as the most solvent nation in the Eurozone<\/span>, and long its primary financial backer, now must pony up a tremendous amount of money for a foreign nation that glutted itself on debt.\u00a0 If approved in Germany the cost to\u00a0that nation\u00a0will initially be around $11.3 billion.\u00a0 The total could get as high as $33.1 billion over the next three years.\u00a0 Needless to say, the public response in Germany deserves monitoring.\u00a0 The German public is already weary\u00a0from the\u00a0effects of the global recession and it may balk at these monies being provided to foreigners.<\/span><\/p>\n

Recall that both Portugal and Spain are in nearly the same situation as Greece in terms of each nations’ public finances.\u00a0 This week the government of Portugal is to hold a public debt auction in the financial markets.\u00a0 It will be interesting to see the effect of this Greek bailout package on the worth of Portugal’s debt interest rates.\u00a0 If the markets are calmed by the bailout deal for Greece then this will be indicated by a lowering of Portugal’s interest rates secured on new debts.\u00a0 If the markets are not calmed then the EU has big reasons to worry.<\/span><\/p>\n

Because of Germany’s likely acceptance of the bailout the other member states of the Eurozone<\/span> will also now likely approve the package.\u00a0 The aid package is now being sold to the European public not as an aid package to Greece but as a stabilization package for the EU’s<\/span> currency, the Euro.\u00a0 Once the Euro has stabilized it will be interesting to see just how much stomach there is for continuing\u00a0aid to Greece for the full three years.\u00a0 I have been saying that this existential crisis calls the whole EU endeavor into question.\u00a0 It appears that the Europeans may have averted dissolution for now.\u00a0 However, the crisis has shown the deep structural faults in the European Union.\u00a0 It will be important to monitor any changes to EU structure going forward.<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Over the weekend Greece, the International Monetary Fund and the European Union agreed to a bailout plan for the Greeks.\u00a0 Here are some of the details: * The Greek government has agreed to new budget austerity measures.\u00a0 The goal is to cut the national budget deficit from 13.6% of GDP in 2009 to less than […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-409","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/409","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=409"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/409\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=409"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=409"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=409"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}