Terms of Greece's third bailout will depress economy

Significance

In the absence of external funding, capital controls will remain. Banks will allow depositors to withdraw up to 420 euros (456 dollars)/week at one go rather than in daily installments and offer limited banking services. The government has reached agreement, in principle, with its international lenders for a third package of financial assistance. Immediate financial collapse is averted, but the new reform package -- although it contains some structural reforms in such areas as pensions, the judicial system and public administration -- is more likely to reduce than remove the danger of Greece's exit from the euro. The domestic economy has re-entered recession and lenders agree that current debt levels are unsustainable.

Impacts

• Greek-EU negotiations exposed a lack of EU cohesion and deep divisions between the two core euro-area members, France and Germany.
• For the first time, euro-area leaders publicly accepted, and at times promoted, the possibility of a country exiting the euro.
• Greek resentment, EU inflexibility and loss of trust in Athens will hinder bailout implementation and could lead to popular unrest.
• The third bailout may add up to 30 billion euros to Greece's debt stock during 2016-18.