Thursday, 16 July 2015

Third bailout for Greece - at what price?

The land of olives. The country that gave us the Olympic Games. The birthplace of democracy...and now the sick man of Europe. We’ve all been watching the Greek tragedy unfold over the past few months. What an economic nightmare! My question here is; will the latest bailout really help the Greek people?

There are some positive aspects of the latest bailout. Greece could be privy to €50 billion from privatisation, which would go towards paying off debt and helping the Greek economy recover. The downside, though, is that the money would come from the selling off of some of the Greek government’s assets. Yes, the money is much-needed in the short-term but this measure means that some wealth is lost. In the long run the government may be losing a source of revenue.

In order to even have a third bailout seriously considered the Greek government had to pass a severe reforms bill in Parliament yesterday. This included harsh economic policies such as increasing VAT, other tax rises, as well as reducing pensions; the latter would be partly achieved by raising the pension age to 67. Unpalatable prospects for anyone but more so for the Greeks, who have been used to retirement at 62 and a lax tax enforcement system. Economically, labour would become more demotivated as less salary could be taken home. This could result in lower tax revenue for the government and reduced economic growth. Moreover, Greece may be subject to further spending cuts.