Following marathon negotiations over several days, European leaders announced a tentative agreement Monday to provide Greece with another bailout, its third in five years – and ensure the country remains in the 19-nation eurozone family, for now. But despite sighs of relief in Europe and in financial markets — experts say now the hard part begins.
Judging from the reaction in financial markets – it’s a done deal. A third European bailout for Greece worth nearly 90 billion euros. But Greek lawmakers have yet to ratify the terms – which include more spending cuts, tax hikes and the privatization of government assets.
That’s the easy part, says Johns Hopkins international economics professor Cristino Arroyo, who spoke with VOA on Skype.
“The really hard part is that they’re going to have to make, besides the required reforms, they will also have to find ways to get growth going and that is the real challenge,” he said.
Even if the Greek parliament ratifies the deal, it’s an uphill climb for a country still trying to dig itself out of a deep recession. Market analyst Mike Ingram at BGC Partners says more spending cuts are unlikely to produce enough growth to reduce Greece’s rapidly expanding debt.
“We’re going to see further cuts in public sector expenditure,” he said. “Broadbrush – a lot more austerity, probably forever.”
Without a plan to grow Greece’s cash-starved economy – economist Robert Kahn at the Council on Foreign Relations says the latest bailout is just a bandage.
“Even if we get a deal, my fear is that it will be really more an effort to kick the can down the road and buy some time, rather than really put in place policies that will return growth to Greece,” he said.
Greece’s largest creditor – Germany, which had been criticized for proposing more spending cuts in exchange for a bailout, says there may be room yet for compromise.
“The Eurogroup is ready if necessary to grant longer grace period and longer loan maturities – we talked about it after the first successful review of the new Greek program,” said German Chancellor Angela Merkel.
While Greek banks remain closed this week – some finance ministers expressed relief that negotiations have averted a potentially destabilizing Greek exit for now. Some say the bigger challenge in coming weeks is how to rebuild trust between Athens and the other 18 countries that make up the eurozone.