‘Today I have learnt that marathon is a Greek word,’ quipped bleary-eyed EU commissioner Olli Rehn after the session. There’s a reason negotiations went on so long: the assembled ranks had a few last-minute details to agree on, after an official report showed they’d need to find extra money. Apparently, the deal they’d already agreed had ‘no chance’ of getting Greek debt levels much below 129% of GDP by 2020 – way above the 120% the ‘troika’ of the IMF, the European Central Bank and the EC had stipulated as a condition for the bailout. As it was, they had to compromise: they’ve only managed to get it down to 120.5%.
The new measures hit private bondholders where it hurts. Under a ‘voluntary’ scheme, the amount of interest they get from Greek debt they hold will be cut by 53.5%, rather than the 50% they had originally agreed. They’ll also have to swap the bonds they hold for much longer-term ones. All in all they’ll get, to quote one disappointed bondholder, ‘well below market rate’, with total losses coming in at something approaching 72%. Bet that went down like a lead balloon…
Greece’s sovereign lenders were also hit. Among other conditions are a reduction in the interest rates Greece pays on its bail-out loans – they’ll be cut by 0.5% over the next five years, and 1.5% thereafter. That should cut a cool €1.4bn out of the amount Greece has to repay, lowering debt levels by 2.2% by 2020. But it also means that its lenders – aka eurozone nations – will lose money on the cash they’re lending to Greece, because their borrowing rates are higher than what Greece is paying them. So the European Central Bank has magnanimously agreed to share the profits on the €40bn of Greek debt it holds with EU member states. Aaah.
None of this means that Greece is out of the hot water quite yet, though. After the meeting, it was given a stern warning that it must hold up its side of the bargain – and its European peers will be keeping a close eye on it. Not only are they planning to send inspectors into Athens to oversee its financial dealings, but it will be forced to keep a special Escrow account containing at least three months’ worth of debt payments. ‘The Greek economy can no longer rely on a large administration financed by cheap debt,’ warned Rehn.
Even with those measures, though, many aren’t convinced Greece can extract itself from the enormous pile of debt it’s built up. German finance minister Wolfgang Schaeuble is one of those: it was with a note of caution that he said the deal ‘creates the preconditions to get Greece onto a sustainable return to economic health if the swap deal with the private creditors is successful’. Others were blunter: Sony Kapoor, an economic analyst in Brussels, said that ‘even with this agreement, most of Greece’s problems lie ahead of it, not behind.’
The markets responded as only the markets could. Having hit 6,000 points yesterday in sheer, giddy anticipation of an extra €237bn sloshing around European coffers, the FTSE 100 appeared to change its mind about the impact of the agreement, and opened 0.37% lower this morning, at 5923 points. In Germany, the DAX dropped by 0.34% while France’s CAC 40 dropped by 0.37%. Not quite the response the Europeans had been hoping for.