BETH HANSON, News Editor
Greece’s Parliament stands poised to pass austerity measures in order to receive another bailout package.
The bailout package will total €130 billion ($170 billion) from the European Commission, European Central Bank and International Monetary Fund. The agreement will likely also include forgiving a portion of Greece’s debts, giving Greece more time to repay their debts and offering Greece a lower interest rate.
The Eurozone debt crisis partially arose from several countries borrowing beyond the three percent limit imposed in 1997 before the Euro went into circulation. As a result of the global financial crisis in 2008, EU leaders agreed on a €200 billion stimulus plan to boost European growth. In 2009, the EU ordered France, Spain, Ireland and Greece to reduce their budget deficits. The Eurozone has since offered bailout packages to Greece and Ireland in 2010 and Portugal in 2011.
Greece’s problems arose from overspending in both the public and private sector. Greece’s economy has been shrinking fo five years. This year, unemployment reached 48 percent for 18- to 24-year-olds. Currently, Greece owes 166 percent of Gross Domestic Product (GDP) in government debt and 252 percent of GDP in foreign debt.
In early February, Germany’s Chancellor Angela Merkel visited China to offer reassurance on the situation in Europe. China’s Premier Wen Jiabao told reporters that China is considering contributing to European rescue funds. Chancellor Merkel told reporters that China insists European leaders need to do more to resolve the crisis before China would step in.
Seventeen countries currently use the Euro. At the end of 2011, nations in the European Union, except the United Kingdom and Czech Republic, signed an agreement for tighter regional oversight of government spending. Part of the agreement includes governments limiting structural borrowing to 0.5 percent and total borrowing to three percent of their economies’ output.
Within the Eurozone, countries like Germany and France have experienced several consecutive months of economic growth while Ireland, Spain, Italy and Greece remain in downturns.
Following five hours of debate last Friday (Feb. 10), the Cabinet in Greece approved the austerity measures, including a cut of 15,000 public sector jobs and a reduction of minimum wage by 20 percent. As a result, five Cabinet members resigned.
In reaction, unions held a 48-hour strike and 80,000 Greeks have protested in Athens. The demonstrations last week were mostly peaceful. However, the weekend brought reports of angry demonstrators throwing stones and petrol bombs. Riot police were put in place and ended up using tear gas to disperse crowds of protesters. During the demonstrations, dozens of police officers and at least 37 protestors were injured and at least 10 buildings were set on fire. 23 protestors have been arrested and 25 more have been detained.
The Parliament voted on the deal last night (Feb. 12), with 199 votes in favor and 74 against. Both Pasok and the New Democracy coalition parties expelled 20 members of parliament (MPs) each for failing to back the deal.
Without the bailout package, Greece would have been unable to stay on the Euro and would have faced bankruptcy when a €14.4 billion payment comes due on March 20. A default would also endanger Europe’s financial stability and could lead to a breakup of the Eurozone.
Part of the aim of the austerity measures and bailout package is to reduce Greece’s debt to 120 percent by 2020.
Greece has to decide whether or not to adopt the austerity measures by Wednesday, Feb. 15.
Sources: BBC, The New York Times