The situation in Greece and how it affects Malta and the EU

The situation in Greece and how it affects Malta and the EU

Recently the Greek parliament managed to pass the second round of austerity reforms.  These reforms need to be fully passed for Greece to acquire €86 billion in bailout money.  This is due to the European member states (and Germany in particular) driving a hard bargain in negotiations which took place in the month of June.

Greek banks closed briefly

Greek banks closed briefly

Although many have viewed the agreement between the Greek government and the rest of the EU countries with disapproval, this deal does have many advantages. Even though the Greek economy is quite small in European and Global terms it is not insignificant.  Had a deal not been reached, it would have been highly probable that the Greek banks would have defaulted (due to the concerned citizens and businesses moving their money from Greece to another country).  In the case of a Greek banking sector collapse, ripples might have been sent all throughout the European Union countries’ banks and even the U.S.A’s banks.  This is due to European banks having lent money to Greek banks whilst the American banks (and other international banks) being linked to these same European banks.  This may lead to similar situation to the “too big to fail” era (which was brought about by the financial collapse of 2009) in which the central banks may once again need to supply commercial banks with cash.  It is good to note that although the Maltese banks are connected to the Greek banks, the former are famed at being conservative and careful when it comes to issuing loans and thus it is probable that the Maltese banks are relatively safe. The bailout terms also state that an increase in direct and indirect taxes are needed to unlock the package.  This will probably make tourism in Greece more expensive which will lead to less tourists visiting Greece whilst visiting other holiday destinations instead.  This will bolster the Maltese tourism sector due to Malta becoming relatively cheap to Greece.

Less affordable?

Less affordable?

A Greek bailout will probably have a positive effect on the Euro.  Currently concerns are present that a Grexit will destabilise the Euro.  These concerns are fuelled by fears that a Grexit will influence other countries to leave the Euro or to negotiate less austerity measures. It should be said that a Greek bailout will not solve Greece’s financial problems.  Although the bailout will help, the latter itself is too small to prove a permanent solution.  Thus the bailout may mean that Greece’s problems will only be postponed and thus another credit crises may reappear shortly.