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After a day of worrisome headlines, Bloomberg reports that the Greek cabinet has approved a package of austerity measures necessary to receive troika loans.This comes despite numerous cabinet resignations and amid growing pressure from both Greek citizens to curtail economic reforms.
Even so, the two biggest hurdles for the plan as well as PM Lucas Papademos are still ahead. First, the Greek Parliament will vote on this agreement Sunday or Monday.
Second, Greeks will have to win approval for the agreement from EU leaders, who thought the deal fell short of the goals they had set for Greece and are demanding stiffer reforms before they give out more bailout funds.
But even if this were all to work out, Greece wouldn’t be out of the woods yet. The Greek government and its private sector creditors are still locked in negotiations over a deal for the latter to take losses on holdings of government bonds. The numbers being bandied about right now are 70-75 per cent, and it is extremely likely that all these creditors will agree to participate in a “voluntary” debt swap plan. This could lead to a credit event and potentially provoke a disorderly default.