It took the charming three tries for Greece to get its third “bailout”, which incidentally does not bail out anyone except the hedge funds who went long GGBs because the only actual winners resulting from yesterday’s transaction – those benefiting from Europe’s AAA club fund flows are hedge funds as explained previously. As for Greece, what the “deal” did was buy it more time to get its hockeystick GDP forecast in order as the only thing that may win the country some future debt forgiveness is hitting an unbelievable 4%+ current account surplus and GDP growth of a ridiculous 4.5% per year. That said, of the cash proceeds going to Greece, to be released in three tranches, totaling €43.7 billion, only a de minimis €10.6bn for budgetary financing, i.e., the Greek population (read government corruption) and €23.8bn in EFSF bonds for bank recapitalisation, read keeping German and French banks solvent. Once the €10.6 billion runs out in a few months, the strikes will resume. So what does this third, latest, greatest and certainly not last can kicking exercise mean? Simple: in the words of SocGen, a short-term reprieve has been hard bought, nothing has been fixed, and “more will be likely.”
But before we present SocGen’s take, here, again, is the only chart that matters: this is what Greece has to achieve in order for the the 2020 124% debt/GDP target to be hit. No comment necessary.
From SocGen’s Aneta Markowska:
Greek Bailout III agreed; more will be needed
In the early hours of Tuesday, Eurogroup President Junker announced that a political agreement had been reached on Greece, offering a new paradigm of confidence, growth and debt sustainability. Combining several measures, the agreement targets Greek public debt at 122% of GDP in 2020 and below 110% in 2022. The plan did not include any outright debt forgiveness, but the door was left open for further adjustments down the road. The next step now is ratification by national parliaments with the aim to allow disbursement of the next tranche to be formally finalised on 13 December. In our opinion, this agreement should suffice to keep the Greek issue off the table until after the German election in autumn 2013, but more will likely be required to make Greek public finances sustainable.
The main measures announced at today’s Eurogroup meeting can be summarised as follows. We have drawn upon the formal Eurogroup statement on Greece and comments from the press conference.
Postponement of the target: The target to reach a primary surplus of 4.5% of GDP has been postponed from 2014 to 2016.
Enhancing Greek debt sustainability: To ensure that Greece can reach debt-to-GDP of 175% in 2016, 124% in 2020 and “substantially lower” than 110% in 2022, the eurogroup agreed the following measures. In total, the measures adopted should allow debt to be reduced by 20% of GDP, with 17pp specifically identified upfront and 3pp contingent very shortly thereafter.
1. Lower interest rate: A 100bp interest rate reduction on loans provided under the Greek Loan Facility (i.e. the bilateral loans). Member states under a full assistance programme are not required to participate (i.e. Portugal and Ireland).