GREECE

Greece may have finally received its chance to avoid default as a loan deal from the Eurozone and the International Monetary Fund, valued at nearly €110 billion or US$145 billion. This is deemed to be the largest bailout in history. In return for the three year loans, a major austerity program will be enacted to raise taxes and decrease public spending valued at €40 billion or 13% of Greece's GDP.

Included in the public sector reforms is the government plans to increase the average retirement age from 53 to 67. It will impose a three-year wage freeze on the public sector, which accounts for a third of the workforce and government workers will lose annual bonuses of an extra two months' pay. The austerity program has come under great disapproval by a majority of the Greek public with demonstrations as well as a purposed general strike.

While the bailout seems to be a lifeline for Greece, the country's past has shown an almost acceptance of default since there have been five defaults and have spent 50% of its years since its independence, in 1829, in default, the highest in the Eurozone. This is certainly keeping pressure on Greece to show that their current crisis is not the beginning of a much larger and more dangerous situation.

Standard and Poor's ahead of the bailout deal downgraded Greece's debt to junk and warned that holders of Greek debt could take large losses in any restructuring, but a greater worry is that Greece's debt crisis is mushrooming to other debt-laden members of the Eurozone. Standard and Poor's has gone on to state that even with a bailout Greece is facing years of declining standard of living and an economy which is expected to stay stagnate at the level of 2008.

Financial markets have been reeling since the crisis began to blossom with fears of Greece's debt problems could be contagious and affect other Eurozone economies as well as the Euro itself. It is now considered more likely than not to default on its debt in the next five years. CMA Davidson, a market monitoring company, has stated that the cost of insuring Greece's debt has risen above that of Venezuela. Greek five-year credit default swaps (CDS) rose at the end of April to a record high 911.6 basis points, or bps, surpassing Venezuela which was until now the highest of all the sovereigns tracked by CMA. (One basis point is equivalent to 0.01%, or one-hundredth of a percentage point.)

A day after Standard & Poor's downgraded Greece's ratings to junk status, the cost of insuring Greece's debt rose to over US$ 900,000 to insure US$ 10 million for a five year period.

Greece, while struggling with trying to obtain loans from outside the country, is facing continuous stresses from labor unions and the ever troublesome Communist party. Almost daily, threats of strikes and walkouts loom over Athens, while officials attempt to reform economic policies. These officials are having their hands tied by these threats and reforms are slow coming. In Germany, where disagreements over bailout Greece are the most vocal with politicians and the media going as far as calling for Greece's expulsion from the Eurozone, the government has maintained that a bailout could be possible, although it would cost Greece, if the Eurozone became threatened or should the survival of the Euro come into question. It has also come out of Germany that Greece will actually require €100 billion to €120 billion over the next three years. There is another problem brewing in Germany as the law to allow such loans to Greece has yet to be enacted and lawsuits are expected to be filed by certain factions in German to block such loans.

Even though Greece has received the bailout needed, this should not be seen as the end to the crisis. While EU and Greek officials are outraged about Standard and Poor's credit rating drop as well as financial markets response to such moves as being not based in reality. The reality is, however, as long as the public sector spending and debt go on at a status quo basis without harsh reforms that are necessary, whether the public supports them or not, there will be no end to the crisis.