At an emergency summit on Thursday, European leaders agreed to a new bailout package for Greece worth $155 billion. For the first time, private banks also pledged to help by giving the cash-strapped country easier repayment terms. Not only will this give Greece the money it needs to proceed with its recovery program, says Prime Minister George Papandreou, "but it will also mean the lightening of the burden on the Greek people." Does this mean Greece is no longer in danger of financial collapse?
The rescue gives Greece some breathing room: This is no cure-all, says Nicholas Hastings at The Wall Street Journal, but "there is little doubt that EU leaders have removed the immediate risk of debtor default that has been haunting the market for so long." The relief was clear across the world, with stock markets rallying and the euro rising by 2 percent against the dollar. It will take months to see how much this really helps, but everyone seems eager to give the deal "the benefit of the doubt."
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But it may not prevent a Greek default: Don't kid yourself — this bailout is not enough to "bring Greece into solvency," says Felix Salmon at Reuters. In fact, it doesn't prevent Greece from defaulting at all; it allows it to go into "'selective default,' which is, yes, a kind of default." That means some of Greece's creditors will get paid — although they might have to wait 15 or 30 years, and take a 20 percent "haircut" — while others might not. And this isn't the end of it: These tricks will be needed again, and again.
And this does nothing to solve Europe's larger problem: This deal might be a short-term win for Greece, says economist Richard Murphy, as quoted by Britain's Guardian. But the trouble is, it "does nothing to really stimulate growth," and "without growth, Greece cannot repay its debts." Nor does it change the fact that Portugal, Ireland, Spain, and Italy also have unsustainable debt. If they all impose Greece-like austerity programs, recession will reign in Europe for decades to come.
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