Marketing Communication
Euro Corporate Watch AGreekment is no done deal
Group Economics Macro & Financial Markets Research Hyung-Ja de Zeeuw +31 20 628 3551 Hyung-ja.de.zeeuw@nl.abnamro.com
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13 July 2015
‘AGreekment’ is total capitulation by Mr Tsipras, but no panacea Implementation risk looms against background of deepening recession Risk of near-term Grexit reduced, but remains looming in the long run Initial market reaction was one of relief, but we think that concerns and scepticism will grow
‘AGreekment’: total capitulation by Mr Tsipras
In the medium-term, the Greek government has to implement
The eurzone leaders have finally reached an agreement on
heavy reforms regarding the labour market, the pension
Greece after a 17 hour marathon session by the eurozone
system, certain product markets, energy markets, and adopt
leaders. The agreement contains major reforms and swift
the necessary steps to strengthen the financial sector. This all
deadlines in return for a third potential rescue package of EUR
will need to be implemented with a satisfactory and clear time
82-86bn.
table for legislation and implementation.
By 15 July the Greek Parliament needs to turn the following
On top of that, an independent fund will be set up to which
measures into legislation:
Greek assets will be transferred. Privatisation of these assets should generate proceeds of EUR 50bn. EUR 25bn will be
streamlining the VAT system and broaden the tax
used for the recapitalization of banks and EUR 12.5bn will be
base;
used for reducing the debt/GDP ratio. The other EUR 12.5bn
measures that underpin the long-term sustainability
will be used for investments.
of the pension system;
legal independence of Elstat, the Greek statistics
Also, the Greeks will need to accept that their administration
office;
will be modernised and de-politicised under the supervision of
automatic spending cuts in case of deviations from
the European Commission. A first proposal should be on the
primary surplus targets.
table by 20 July. The Greek administration also has to commit itself to a cost cutting schedule for the administration itself.
By 22 July the Greek parliament needs to approve: Lastly, almost all the legislation that was implemented during
reforms of the justice system, significantly accelerate
the Tsipras administration will need to be amended, reversed
the judicial process and reduce costs;
or replaced by compensating measures.
meet the Bank Recovery and Resolution Directive. Implementation risk looms against background of
After the first four measures are transformed into legislation by
deepening recession
Wednesday, the national parliaments of Germany, the
At first glance the ‘AGreekment’ looks like total capitulation by
Netherlands, Finland, Austria, Slovakia, Estonia and France
Mr Tsipras. The referendum clearly made things worse.
will have to give their approval. Only then, negotiations for a
Instead of strengthening his negotiation position, he lost the
third ESM programme can start.
last bit of credibility he had with the eurozone leaders and threw the banking system into chaos.
Insights.abnamro.nl/en
Bloomberg: ABNM
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Euro Corporate Watch –
AGreekment is no done deal
The deal that was on the table prior to the referendum was
eurogroup and the IMF have expressed serious concerns
less draconian than the current agreement. The referendum
regarding the sustainability of the Greek debt level.
also set the Greek population on the wrong footing. They expected a better deal, not worse. On top of very harsh
Risk of near-term Grexit reduced but remains looming in
economic measures and reforms, Greece now also has to turn
the long run
over part of its sovereignty to Europe. Indeed, it remains to be
We think that the ‘AGreekment’ has reduced the risk of a near-
seen if Mr Tsipras can obtain a majority in Parliament for this
term Grexit but the risks remains significant. Greece has made
agreement.
all the concessions by accepting very tough measures. But, let’s not forget that this is only a list of minimum requirements
But even if Mr Tsipras will find a majority for now ,
to start the actual negotiations for a third rescue package. The
implementation will still be extremely difficult. The Syriza
real number crunching still needs to be done (on financing
administration has led the Greek economy into a recession.
needs, debt sustainability and bridge financing). Today the
The recent bank holidays and financial chaos has added to the
latter will be discussed in the eurogroup meeting. Greece
precarious situation. The biggest risk therefore is the
needs EUR 7bn by 20 July and another EUR 5bn by mid-
implementation of the measures in the coming days, weeks
August.
and months against the background of a deepening recession that will certainly erode the willingness for implementation.
Initial market reaction was relief but concerns are growing After Friday’s rally, equity markets rallied another 1 to 1.5% on
Green light national parliaments also needed
the ‘AGreekment’ announcement this morning. Fixed income
Another hurdle on the way are the national parliaments of
investors made the same assessment this morning and initially
some eurozone members, and the German Parliament in
the 10-year bund yield briefly touched 0.98% before reversing.
particular. There was already quite some resistance against
Credit spreads tightened a couple of basis points but on very
the second rescue package, including members of Merkel’s
light flows.
own political party. This time, the stakes are higher and the resistance against a potential third rescue package will only
Overall, this ‘AGreekment’ marks a big U-turn of the Greek
have grown.
administration but the implementation risks are high. This agreement is certainly not a panacea for Greece and the
Target privatisation fund seems unrealistic
eurzone. The first test is Wednesday when the Greek
We also have strong doubts for the target amount of EUR
Parliament needs to approve the first set of measures. Our
50bn for the privatisation fund. This seems rather unrealistic,
feeling is that this morning’s optimism will ebb away and will
also when bearing in mind that the previous proceeds of the
slowly be replaced by scepticism and concerns.
privatisation plans in the previous agreement fell well short of expectations. If that happens the debt sustainability projections will not be met. No haircuts, but debt relief could be a possibility The document further states that the eurogroup ‘stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level.’ However, debt relief will only be taken into consideration if the measures agreed upon in a third ESM programme will be fully implemented. Haircuts are out of the question although the
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Euro Corporate Watch –
AGreekment is no done deal
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