The light at the end of the tunnel

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Flags of Greece and Eurozone flying with The Parthenon, the oldest surviving temple, in the background

It seems that finally the Greek recovery is gaining some traction. The much bruised and battered economy of Greece finally got a reprieve when Eurozone finance ministers and the IMF sealed a deal reducing the long term debt of Greece and release he much needed funds to keep the economy going. This is more of a vote of confidence from the EU and the IMF believing in the measures being carried out by Greece. Some are calling it a stab in the dark and more of a gamble; however, now that they are so far down the line, it was the best option available.

This helps the Greek economy in two primary manners. First of all, the belt tightening that was needed and was being asked for by everyone has been done by Greece. The passing of newer austerity measures shows that there is serious commitment on the part of the country to pull through this crisis. This has been complimented by the economic and financial support being given to it by the stakeholders to the crisis and this sends a strong signal to everyone that there is a need to solve this issue as soon as possible. This has also seen its effects already in the currency markets with a stronger euro gaining over the dollar as it is. It seems now that the continuous support by EU to Greece and the result of the fiscal cliff could mean that the dollar can further lose its value in the near future.

The plan agreed to by Greece’s lender is to reduce the debt by 40 billion euros which makes it 124 per cent of its 2020 GDP. This comes in addition to a promise of further assistance if there is a need to be and the lenders are prepared to write off the short term debt in order to guarantee the long term viability of the country. The extra funds being released will be used to pay the necessary amenities to the government sector of the country which has been ignored till now and to recapitalize the banks which need the liquidity in order to carry out their operations.

The deal also saw a cut in the interest rates, extending of the maturity and deferring of the interest payments for up to 10 years. This all means that for the time being, the economy that was on life support has gotten the boost that it needed. Even though it can be said that this is only prolonging the problem and delaying it for another date, the boom that is expected in the economies in the near future is expected to take care of the debt problem when the time comes. It seems that the problem that was becoming more and more inevitable has been averted. With protests on the streets and a deadlock at the higher echelons of power, it seemed that the crisis would be a zero sum game where one would be better off than the other. This solution has allowed both parties to be better off at low cost and will benefit the Greeks and its stake holders indirectly.

There is a blind spot that is being ignored about the future standing of this deal, but that is seen as bridge that will be crossed when they get to it.

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