Today Eurozone leaders agreed on a bailout rescue plan for Greece. According to European Council president Herman Van Rompuy, “[they] improved Greek debt sustainability, took measures to stop the risk of contagion and finally [they] committed to improve the euro zone’s crisis management.”
I am puzzled that the agreement speaks nothing of policy changes in Greece. It seems as though today’s debt agreement has produced a bigger band-aid when in fact the patient (the Greek financial system), desperately needs corrective surgery.
The new bailout will supplement the 110bn euro ($156bn) rescue plan for Greece launched in May last year.
Together with the International Monetary Fund, they will give Greece a second bailout worth 109bn euros
($155 billion). Banks and other private investors will also contribute some 37bn euros to the rescue package.
“We have decided to support Greece as a member of the euro and the eurozone. It is a determined commitment,” Sarkozy told reporters as leaders emerged from the summit. “All the euro countries have decided to be at its side.”
Greek prime minister, George Papandreou welcomed the agreement, “we now have a programme and a package of decisions which create a sustainable path for Greece, a sustainable debt management for Greece.”
Without reform, I struggle to understand how the Greek financial system can avert another crisis in the future. Time will tell; however, I remain skeptical.
One key element of the package is an expansion of the role of the European bailout mechanism, the European Financial Stability Facility (EFSF) so it can act more freely.
The purpose of the EFSF is to finance loans to Eurozone member states. Again, pouring money into a hemorrhaging system would seem illogical. Read an earlier post concerning Greece’s terrible government spending. If I have misinterpreted information, please help me understand.
Source: Al Jazeera English