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Austerity, Varoufakis, Bailout, Yogurt

What do all these words have in common? They're all very hot right now and all relate somehow to the Greek economy. Well yogurt not as much, but the other 3 have detrimental, long term ramifications for the country's fiscal stability.

Over the past few weeks, Greece's freshly minted Finance Minister Yanis Varoufakis, has been presenting his case to the other members in the European Commission, the ECB, and the IMF for a new bailout set to ease already high austerity measures plaguing the country. Digging his heels in and standing tall with his Prime Minister Alexis Tsipras, the two are trying to deliver on their anti-bail out campaign. But before we jump into that, let's take a step back and see where this all started from.

Let's go back to October of 2009, when Varoufakis' great, great, great predecessor George Papandreou took to office as the Prime Minister, only to come to a very rude awakening. Greece had been significantly understating its debt. With impeccable timing no less as the world was coming to grips with the financial crisis which hit in 2007. However, this should come as no surprise given Greece's more than generous welfare and pension initiatives, frivolous infrastructure spending, and non-existent tax system. To make matters worse, Moody's had downgraded Greece's debt rating from A- to BBB+, the word was out.

Tight on cash, the Government needed help. So as did so many other countries at that moment in time, Greece asked for a bailout. But having been exposed for its shortcoming, an ordinary bailout wouldn't cut it, and Eurozone leaders weren't ready to cut Greece any slack. With that came the first bailout in May of 2010 in the form of a €110bn loan from the EU, ECB, and IMF. The cash also came at the price of strict and sever austerity measures including spending cuts, tax hikes, and structural reforms. But it wasn't enough and in July a second bailout was agreed on for €109bn with private bondholders. bringing in even stricter austerity measures. Having already collapsed the economy, this was the straw that broke the camel's back and led to violent protests in Athens.

Let's jump ahead now to January 2015, following Greece's latest election. Tired of cut throat austerity measures and a worsening economy, the people were ready for a change, and that's exactly what leftist party Syriza, led by Alexis Tsipras, was promising. Anti-bail out and anti-austerity was the theme for Syriza, leaving the rest of the world puzzled as to how exactly they could deliver.

Now back to present day, Varoufakis and Tsipras have been at it for weeks negotiating with their fellow European counterparts for another bailout. All of which is to fill a basic short-term funding gap, which is far from any long-term sustainable solution for the country. Fortunately, Greece did manage to secure to funding at the last minute, but many people are beginning to believe it was at the expense of their pre-election promises. So much so that citizens took to the street late last week in Athens for another protest, the first since Syriza took office.

While this is just the beginning of a very juicy story, which I'm guessing is far from over, one thing is for sure, Greece needs some serious intervention to both stimulate their economy and re-conform their faulty government spending.

Jonathan Goldstein

Member of the M&A Club Advisory Board

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