Part 1 of 3: Big Steps to Baby Steps for Greece's Economy

Greece is finally making progress.  After two days of rioters (around 15,000) protesting the current stance in Greece, austerity has been planned in the first of three steps to a second bailout in three years.  CNN has reported that Greece will now move forward to avoid a 14.5B Euro bond default due in March.  As of now, the total amount of debt is 130B Euro.  Prime Minister Lucas Papademos believes the austerity package will push Greece out of its problems.  However, this comes at the cost of potentially 15,000 state worker's jobs, lowered budget, and a 22% reduction in wages.

With the second bailout in the last few years, many question whether Greece should jump ship and leave the Euro.  Chief Global Economist Erik F. Nielsen reports the dangers that would follow Greece if they try to leave the Eurozone.  Nielsen believes that in the short run the EU will be harmed, however, can overcome the loss in the long run.  Greece is a different story.  He believes they will struggle to recover in both scenarios, and the short run will cause a further drop in Greece's economy. 

For the EU, short run struggles would make sense if Greece chose to leave.  With countries (including Germany) putting tons of credit to support Greece bonds and investments, the picture of not getting paid back would create shocks throughout Europe and the global economy.

It should be interesting to follow up on the next two parts of the bailout process. Greece may almost come out of the woods, but with Italy, Portugal, and Spain experiencing economic woes, we likely haven't seen the end of the Eurozone crisis.

References:

1. Stoukas, Tom. “Rioters Burn Buildings as Greek Parliament Votes on Cuts”. Bloomberg. http://www.bloomberg.com/news/2012-02-11/papademos-appeals-to-greeks-on-eve-of-vote-as-party-leaders-back-austerity.html
2. Rooney, Ben. “Greek Parliament Approves Austerity Package”. CNN Money. http://money.cnn.com/2012/02/10/markets/greece_vote/index.htm