The deal is bad for Greece, bad for the EU economy and stability. Avoid EUR assets
The deal agreed by Greece and its European creditors last night is worse for the country and ultimately worse for the European Union (EU) than the previous deal which was overwhelmingly rejected by Greek voters just ten days ago. Greece already has 26% unemployment, the banks and stockmarket have been closed for three weeks and tourism is suffering as visitors stay away due to unrest. Austerity measures now agreed to will only cause a prolonged decline for Greece, not a lifeline.
Whether ratified or not, the direction taken by the EU on this issue is concerning. This deal will keep Greece in the Eurozone at least a while longer, but at a great cost, and with no improvement in the certainty about the long term prospects for either Greece or the EU.
The deal reached has greater concessions in the form of higher taxes, cuts to government pensions and state asset sell-offs to repay debt. There has been protests around the previous reforms, so Greece’s Prime minister, Alexis Tsipras, has almost certainly set up months - if not years, of political and economic unrest for Greece. The gamesmanship from Tsipras has cost his country three weeks of economic shutdown and substantial damage as a tourist destination. And, all for the sake of accepting a worse deal than previously offered.
Although, Greece’s naivety about its bargaining position isn’t the real concern. Rather, the approach taken by the Germans is the real concern. Germany wanted to punish Greece for its poor fiscal management. France on the other hand, has been holding the line that Greece is part of the Eurozone and therefore should be supported. In the end, France won the argument but Germany’s imposed conditions are so severe that they could easily topple Greece’s government, its economy or both.
The EU’s inability to reach a compromise between its two superpowers, France and Germany, is the real concern. The people of Greece are paying the price, but in the long run, decreased confidence in the EU will be expensive.