Recently, it was announced that Greece and its European creditors had reached an agreement to help resolve the stricken nation’s debt crisis. This news has been met with a largely positive response, although there are a number of reasons why political leaders and investors should remain concerned.
While a deal may have been reached in principle, for example, it is dependent on Greece following some stringent financial reforms and additional budgetary cut-backs. With the finer details also still be negotiated, it may well be a while before the global economy can look forward to a long-term resolution and a settle Eurozone.
Why should Investors be Wary?
Investors should be particularly wary, especially those who trade in currency or aim to achieve long-term gains. To begin with, this would represent the third bailout that Greece has negotiated in the last five years, and the nation’s failure to uphold the terms of previous financial agreements has cast a huge shadow over recent events. In particular, the country has found it almost impossible to implement the requested budgetary cuts and loan repayments, angering benefactors such as Germany and the UK. There has been a recurring breakdown surrounding Greece’s demands for a viable loan repayment system that avoids austerity and hardship.
The argument of the IMF and other nations is that long-term reform is not possible without significant austerity or financial restructuring, and this is something that Greece have refuted during recent negotiations. In fact, a lack of trust and willingness to compromise has driven harsher terms this time around, with leading Eurozone nations unwilling to regularly invest in Greece’s financial future. Another key issue is the approach of the European Central Bank, as many have argued that it is senseless for this institution to continually channel emergency funds into Greece without stringent regulations for how they are used.
The Future and the Outlook for Investors
Ultimately, a short-agreement must be reached, as too much money has previously been invested for Europe to abandon Greece at this stage. The question that remains is whether this can be sustained over time, as political leaders in Greece can give no guarantee that the demands of the IMF will be accepted or adhered to once they have been approved. This is a huge concern for investors with a long-term outlook, as it is almost impossible to imagine the Euro and associated stocks performing consistently until a sustainable resolution has been reached.
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