Greece Receives Second Bailout From European Union

Greece Receives Second Bailout From European Union

On Tuesday, the European Union agreed to a second bailout for Greece.

That means the EU will let Greece exchange $173 billion of its $485 billion debt for loans at a low rate of interest in order to keep it from defaulting.

Defaulting would mean that the country would break the terms of its loan, enabling lenders to demand that Greece repay them immediately.

Unfortunately, this isn't the first bailout the country has received (the first was in 2010), and it still might not be enough to keep Greece afloat.

Changes Inside and Out

Even with severe austerity measures approved by the Greek parliament, such as a 22% reduction of minimum wage, a reshaping of pension plans and government jobs, and a rise in taxes, there is generally little hope that the country will fulfill its debts. According to The Wall Street Journal, the International Monetary Fund—one of the key organizations lending Greece money—is concerned that the recommended process of devaluing the Greek economy (making it cheaper to do business with Greece) along with reducing its debt burden will take too long to be effective.

A Downturn and a Downgrade

Greece finds itself in such dire straits due to overspending since it joined the euro, according to the BBC. Once the global downturn hit, the country was unprepared to manage. Some economists predict that no matter how many austerity measures and how much outside help it receives, Greece is in a downward spiral. Credit rating agency Fitch announced on Wednesday that it downgraded Greece because of its new financial deal, which will constitute a 70% loss for the banking industry.

On the bright(er) side, John Taylor of The Wall Street Journal points out that the fear of international contagion surrounding the 2012 bailout is less than that around the 2010 measures, because other countries have minimized their exposure to Greece as best they could.

Of course, that's still dim news for Greece.

More From LearnVest

Doesn't the "other" S&P 500 sound intriguing? We reveal its secrets.
There is an actual, economic reason to be optimistic. Find out why.
Did you know that your friends can hurt your investments? We explain how.


Financial planning made simple.

Get your free financial assessment.

Related Tags

Get the latest in your inbox.

Subscription failed!

You're Now Subscribed!