Euro leaders agree €109bn bailout for Greece

Yesterday Eurozone leaders met at an emergency summit in Brussels and agreed a further €109 billion (£96.3bn) rescue package for Greece along with a lower interest rate and more time to pay it off.

Greece’s total debt currently stands at €350bn and without yesterday’s deal many economists feared that Greece would have had to default and admit that it cannot pay back its creditors. This would have caused a major financial crisis across the rest of the Eurozone.

The conditions of the rescue package are softer than previous rescue packages; Greece has 15 years to pay it back and the interest rate on the loan was cut to 3.5%. These conditions were also extended to Portugal and Ireland, who have also received rescue packages, in an attempt to prevent the financial hardship spreading.

UK taxpayers will not be funding the Greek bailout but this rescue package is an extremely important for Britain’s financial health. The UK’s exposure to Greece is relatively small at around £9billion. That may not seem small but it is in comparison to our exposure to other European countries.

Our exposure to Italy is around £40 billion, Spain around £60 million and our biggest exposure not surprisingly is to Ireland at around £90 billion. As our exposure to the rest of Europe is very high the fallout from a Greek collapse would be detrimental to our economy. The fear is that if Greece defaults on their debt it will have a domino effect which means, just like with the banking industry, it will cause problems for several other countries.

European banks could be forced to take a hairline cut. This means that say if a Bank in France is owed €800 million by Greece, it will only receive 200million. That French bank may then turn round to a British bank which it owes money to and insist that they take some of the fall too, and only pay back some of its debt.

Also with the Eurozone accounting for 40% of UK exports, the crisis in Greece is most definitely of real concern to Britain.

For now the bailout has bought Greece time but it has several serious issues it needs to confront. The Greek system is known for being corrupt. It is all well to increase taxes to help pay off its debt but if no one in Greece pays their taxes, it won’t have much of an impact. The Greek retirement age also used to be 53, which is extremely low considering the hike in the retirement age of people in the UK. Greece must focus on changing the attitudes of its people if it is to works its way out of debt.

The announcement of the Greece aid package has restored some confidence in the markets with stock markets receiving a boost. UK, French and German markets gained more than 0.5% in early trading, while Japan’s Nikkei closed up 1.2%. The euro also rose further against the dollar.

How do you feel about the Euro crisis? Do you anticipate seeing much of an impact on the British economy?

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