Greek political leaders have finally agreed to new austerity cuts necessary to receive a fresh bailout package, just hours before the latest talks in Brussels between finance ministers from 17 eurozone nations.
The deal was necessary for the beleaguered nation to avoid bankruptcy, since Greece needs the bailout cash by March 20 in order to redeem a boatload of bonds coming due. If the nation wasn’t able to make the payment, it would be in technical default and could be forced to leave the eurozone.
Now, Greece isn’t out of the woods just yet—this is the fifth year of recession for the country, its manufacturing output fell by 15.5% in December on a year-over-year basis and unemployment continues to climb, rising to 20.9% in November. In addition, the nation needs to figure out how to reign in its unsustainable spending habits. But this deal does help protect the economic stability of global markets.
This is because the problems in Greece aren’t just about Greece. Many European banks, especially French and German banks, hold Greek sovereign debt as part of their bank reserves. Due to the uncertainty regarding Greece’s debt restructuring and budget cuts and the losses that banks could suffer, there is still plenty of risk in the financial sector.
I’ve said it many times—I’m an ex-banking analyst, and I can tell you that the banks are a mess. Not just in Europe, but also here in the U.S. It’s going to take time for the European debt crisis to sort itself out, and we’ll continue to see scary headlines in the meantime.
In fact, I don’t blame you if you’re tired about listening to news about what’s going on in Europe—I am too. The sovereign debt crisis has gripped the markets for months, and it seems like economists and the media alike have hashed and rehashed every possible doomsday scenario.
However, the recent bailout packages and deals in Europe have definitely eased the likelihood of an immediate banking crisis. And although the European debt crisis has dominated headlines, investors are increasingly paying a lot more attention to more important market-moving news—like improving economic news in the U.S. and strong earnings from multinational companies.