Europe is not saved, it’s in debt up to its eyeballs

After a lengthy night of negotiations, another eurozone bailout deal appears to have been agreed for the Greek economy.

This is a big one. Greece is being lent more than £110bn in return for agreeing to slash its debt from 160% to 120.5% of GDP by 2020.

Perhaps an even bigger commitment from Greece is the permanent presence of an EU economic monitoring mission in the country.

In addition the loans, private investors with Greek debt have to accept losses of 53.5% on their bonds, with the real losses they will suffer at around 70% of their investments.

For a country that is well and truly bankrupt, getting back 30% of an investment in its debt might seem like a reasonable outcome.

This deal still needs the backing of the Greek government, with a vote expected to take place tomorrow.

Whilst at face value this looks like a decisive deal to save the troubled eurozone, we remain unconvinced that it has solved anything.

The money that is being lent to Greece needs to be paid back. It is money being used to fund existing debt, rather than help Greece grow its economy.

In personal finance terms, this bailout is just like borrowing on a credit card to keep up with monthly mortgage interest payments. It makes no long term sense, it simply avoids short term disaster.

One thing we can be certain of is that this does not represent the end of the eurozone sovereign debt crisis.

This latest bailout deal simply kicks the problem a little further down the road. At some point, Europe is going to have to face up to the financial mess it is in.

Photo credit: Flickr/fdecomite