Euro Watch Greek deal no panacea
Group Economics Macro & Financial Markets Research Joost Beaumont +31 20 628 3437
13 July 2015 • • • • • • • •
Agreement reduces near term Grexit risks, but they remain high Greece made all the concessions, but more to come as this only opens door to ESM negotiations Language on reducing Greek debt burden almost exactly the same as in 2012, so no big concession The biggest risk now is implementation against the background of a deepening recession Parliamentary processes in Greece and other countries will also be difficult 50bn in asset sales not realistic Reduced risk of Greek bank collapse, as ECB will likely increase ELA limit We continue to consider Greece debt crisis or Grexit risks as not being a Lehman moment for Europe
A deal reached, but risks remain high
size is EUR 50bn over the life of the new loan, half of which
Following a marathon session, this morning Greece and its
will be used to recapitalize the banks and the rest will be used
creditors finally reached a deal, which opened the door to
to repay debt and support investment. Another demand is a
negotiations on a 3 year ESM package worth between EUR
strengthening and modernisation of the public administration
82-86bn. The agreement reduces the near-term risks of a
under the auspices of the European Commission (EC). A first
Grexit, although risks of a Grexit remain high. Having said that,
proposal should be submitted by 20 July.
we also continue to consider that such an event would not constitute a Lehman moment for Europe.
As implementation is key, the statement notes that it welcomes that the Greek authorities will submit a request for technical
Long list of measures
assistance from the Institutions, coordinated by the EC.
The statement of the Euro Summit includes a long list of
Interesting in this respect is that the IMF will remain involved.
measures that the Greek government needs to implement. In
Furthermore, the government needs to re-examine earlier
order to rebuild trust, the government needs to ‘legislate
adopted legislation that ran counter to previous agreements.
without delay a first set of measures’. By Wednesday (15 July), the Greek government needs to implement measures to
Minimum requirements
improve the VAT system as well as the pension system, while
Approval of the long list of measures is just a minimum
it should introduce some quasi-automatic spending cuts in
requirement to start negotiations on a new ESM programme.
case the target for the primary surplus will be missed. Finally,
Moreover, the statement stresses that the start of the
the Greek statistical agency (ELSTAT) needs to get full legal
negotiations will not automatically result in an agreement, as a
independence. Furthermore, the civil justice system needs to
lot of number crunching still needs to be done (on financing
be improved and the Bank Recovery and Resolution Directive
needs, debt sustainability, and bridge financing). However, the
written down into the law by 22 July. These are only prior
Eurogroup will meet today on bridge financing, as calculations
actions that need to be met.
show that Greece needs EUR 7bn by 20 July and another EUR 5bn by mid-August.
Looking further forward, the list of measures is much longer, as the Greek authorities need to implement (tougher) reform
Debt restructuring considered later
measures given the worsening outlook for the economy. The
The Eurogroup has serious concerns about the sustainability
measures should include ambitious reforms of the pension
of Greek debt, but will only consider possible longer grace and
system, product markets, energy market, as well as rigorous
payment periods after the successful completion of the first
reforms of the labour market in order to align labour market
review. In addition, it said that nominal haircuts are out of the
policies with international/European best practices.
question. This mirrors language used in 2012, so this is not a
Furthermore, steps need to be taken to strengthen the financial
big concession to Greece.
sector. Privatisation fund The creditors have also demanded that ‘valuable’ Greek assets will be transferred to an independent fund located in Greece. The assets will be monetized through privatisations as well as other means (likely operational proceeds). The target
Risk of near-term Grexit reduced… We think that the deal has reduced the risk of a near-term Grexit, although the risk remains significant. Greece has made all the concessions by accepting the very tough measures, but this only opens the door to ESM negotiations, so more concessions are likely to come.