Are We Throwing Money into a Black Hole?

Posted by Allison on 22 February 2012, 15:39

At the time of writing there have been news headlines announcing the fact that Greece has finally been bailed out of its debt hole by a total of sixteen countries in the Eurozone. Some will say this is a relief – literally – while others talk of a black hole down which billions of Euros worth of cash will disappear, never to be seen again.

But what is the real story here? While the initial reaction to the news might be one of relief – after all, Greece has been prevented from defaulting on its debts thanks to the new agreement – there is a lot more here than meets the eye. The current crisis may be over as far as the finances go, but many think this is just the latest stage in a far bigger situation.

The latest bailout is worth an eye watering £110 billion. But will it do any good at all? The Greeks have been demonstrating for a while that they aren’t happy with it and don’t want the austerity measures that will be thrust upon them for many years to come. The country clearly needs to get out of its rut, but many think that it would be better off getting out of the Euro and going back to the drachma.

The problem here is that certain things need to happen in order for Greece to get out of the rut. The bailout package may be huge but it is not enough to solve all of Greece’s problems. It is merely a sticking plaster to ensure it is able to repay billions of Euros worth of bonds in mid March. It is anyone’s guess as to what will happen beyond this. But even the most optimistic of people cannot discount the idea that the Greeks will be back to negotiate further handouts and payments at some point in the future.

So would it be better if Greece defaulted? This is a classic situation of being between a rock and a hard place, but in truth the billions of Euros that are being pumped into Greece will probably never be seen again. And they may well not be enough to solve all of its problems – not even for the immediate future.