Greek Tragedy Averted

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What's going on?

Overcoming difficult negotiations, Greece and its lenders came to an agreement on Tuesday to lend the country more money – and avert another Greek crisis.

What does this mean?

As you may remember, Greece has come close to going bankrupt a few times in recent years. The closest it came was probably in 2015, although a deal was eventually agreed. However, the deal required Greece to meet certain conditions over the coming years in order to continue to receive funds. That’s where the stumbling block emerged, as Greece’s lenders (principally other eurozone countries, like Germany) weren’t prepared to give out this year’s payment. But Greece has agreed to cut its spending further and increase taxes, and the lenders have agreed to lend more money. Importantly, the lenders also agreed to discuss how the terms of Greece’s current debt could be amended to make future repayment easier, which could be a huge step towards Greece’s ultimate economic recovery.

Why should I care?

For the markets: If it becomes easier for Greece to pay back its debt, it’s likely that far more international investors will return to the country.

The details are kind of complicated, but essentially if it looks a lot more likely that Greece can pay back its existing debt without receiving new funds from other eurozone countries, then private investors (like big international investment funds) will feel a lot more comfortable lending the Greek government money. This is typically done by buying Greek government bonds, which is likely why Greek bonds went up following the news.

The bigger picture: Investment from others makes it easier for a country to recover.

International investors would also likely invest in Greek businesses, which would, in turn, have more money to spend on things like upgrading factories, hiring more workers and a whole bunch of other things that would help the Greek economy. This scenario is not yet a reality, but Tuesday’s news supports the prospect of a happier ending for this ongoing Greek (economic) tragedy.

Originally posted as part of the Finimize daily email.

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