Greece Reaches Debt Deal

Somebody go wake up the kids -- Greece finally hit the pinata. The struggling country appears to have agreed with the European Union on a debt deal that will "save" the country from bankruptcy.

After weeks of being just "hours from a deal," Greece's parliament voted in favor of very stringent austerity measures yesterday that could reduce public wages by as much as 22%. In exchange for strict public spending cuts, Greece will shave $132 billion (about half) of its private sector debt off its books and will receive a $171 billion cash infusion from the EU and International Monetary Fund to keep it out of bankruptcy.

Greece's citizens aren't too happy about the deal -- and with good reason. The country itself was in a no-win situation, facing either bankruptcy or severe budget cuts. In just a two-year period, Greece's unemployment rate has nearly doubled to 20.9% and almost half of Greece's unemployed citizens (47.5%) are currently listed as "long-term unemployed."

Source: TradingEconomics.

Don't get me wrong, I do understand the reasoning behind the stringent budget cuts. If the EU had appeared to come off as soft on Greece, it would offer an easy "out" for Portugal, Ireland, and potentially Spain and Italy if things continued to deteriorate for those debt-riddled economies. In order to present a sheriff-like appeal, the EU had to take a hardline approach to its dealing with Greece and drive home the point to other EU nations that default is not the answer.

The other point that was driven home is that Greece is going to be a mess for a long time. These austerity measures are only bound to make a struggling economy even worse.

Source: TradingEconomics.

Adjusted savings as a percentage of gross national income are at 30-year lows, which bodes poorly for publicly traded National Bank of Greece (NYSE: NBG  ) and the country's citizens, which are dealing with a rapidly shrinking economy and rising unemployment rates.

This deal might be enough to get European banks BNP Paribas (OTC: BNPQY), Deustche Bank (NYSE: DB  ) , and HSBC Holdings (NYSE: HBC  ) to breathe a temporary sigh of relief since they have Greek debt exposure of $7.1 billion, $2.5 billion, and $1.9 billion, respectively, but it does nothing to change Greece's near-term economic outlook.

You know, on second thought, I've changed my mind. Go put the kids back to bed -- there's nothing to see here that materially changes Greece's situation.

Do you see a better solution to Europe's sovereign debt disaster? Share it in the comments section below.

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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He will never turn down an opportunity to wail on a Boston Red Sox pinata. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's cavity-free.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 14, 2012, at 3:52 PM, Darwood11 wrote:

    The Greek situation is a poster child for governments that borrow to maintain current life styles, keep taxes low, have too many on the dole, and run constant deficits.

    Just like the U.S.!

    My great disappointment in all of this is the way people like to rant about the banks. it's like ranting about the drug lords. They simply provide what people want. It's government policies and social mores that create the situation.

    Case in point? It's possible that Whitney Houston will be determined to have succumbed to the consequences of drug use. Yet today, the fires are burning for this "great entertainer." I sympathize with Ms. Houston, who is dead. However, she is another poster child and a victim of what doesn't work in our society. She made some poor choices and more than a few mistakes.

    She had $millions and didn't use that wealth very well. I provide this quote:

    "The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well."- Ralph Waldo Emerson.

    I suggest that Ms. Houston, as so many of the "rich and famous" in the U.S. who are our "role models" have taken a wrong path in life. And far, far too many in society are ready, willing and able to support them is those sad pursuits.

    I suggest that is also true of our political leaders, who, as were the leaders of Greece, are too willing to kick the can down the road, and too willing to take the popular route. Today, Greece is paying the price for extreme political and leadership failure.

    In 20 years, it may well be the U.S.

  • Report this Comment On February 17, 2012, at 12:49 PM, MissVinayDuggal wrote:

    Greece should not accept ANY bailout terms and continue being the taxevading,financially corrupt nation it has been for at least the last 2 centuries.

    The G people can figure out their own finances or someone should step in and claim the entire nation of Greece and hand it over to the Vatican today.

  • Report this Comment On February 17, 2012, at 2:43 PM, DJDynamicNC wrote:

    I'm glad the banks can breathe a sigh of relief.

    Meanwhile, Greece burns.

    Oh, but I forget, the Greeks must be "punished" for their spendthrift ways. Yes, economics is a moral mission, and they have betrayed the one true faith.

    Praise be to the bond market!

  • Report this Comment On February 17, 2012, at 2:48 PM, DJDynamicNC wrote:

    "My great disappointment in all of this is the way people like to rant about the banks. it's like ranting about the drug lords. They simply provide what people want. It's government policies and social mores that create the situation. "

    I like this analogy.

    Let's extend it a little and talk about a responsible drug lord who only serves as much of his product as he thinks the customer can handle. He does this because there are certain regulations in place which require him to be cognizant of his client's situation, because we as a society are aware of the dangers inherent to drug use.

    For the sake of analogy, let's call such a druglord a "bartender." Has a nice ring to it.

    Remember - a banking institutions job is to loan out money to those it deems worth the risk. If it has failed in that duty, it must pay the price - but instead we don't hesitate to turn the free money hose on all the bankers lest the economy collapse when they make a bad bet.

    If it's mere ordinary citizens, of course, then it's sacrifice and belt-tightening all around.

    Hell of a way to run a world.

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