A look at the winners, losers & terms.
It looks like Greece will stay in the euro. After eurozone finance ministers pulled an all-nighter, negotiating for 17 hours into early Monday morning, the government of the beleaguered nation accepted the latest bailout terms offered by its creditors. The deal was unanimously approved by the eurozone’s 19 member countries.1
This third bailout agreement contains the harshest austerity measures yet. There was no debt haircut for Greece, and this latest round of relief comes at a remarkable price. In exchange for another $95 billion worth of aid over the next three years, Greece agreed to more than just sales tax hikes and cuts in pension payments – it also agreed to sell off state assets.1
To explain this a bit further, Greece will transfer about $50 billion worth of “valuable” assets into a “guarantee fund”. (This was Germany’s idea.) These assets – likely bank shares that the Greek government will buy up with bailout money in order to recapitalize its banks – will be used as collateral on the latest bailout package. The mission is to sell them in reasonable time, with half the cash going toward repayment of the bailout funds, a quarter toward investment, and another quarter applied to Greece’s national debt.2,3
This yet-to-be-named privatization fund will be based in Greece and run by Greek authorities, but Greece’s creditors will supervise its actions. Greece might have until the mid-2020s (or longer) to sell these assets, as the new bailout loans may have long maturities.3
In the words of French President Francois Hollande, Europe had “a good night, and a good day” – and no Grexit. Who won and lost most in this new deal? 1
The winner: Angela Merkel. Germany is the premier economy in the eurozone and Greece’s biggest creditor, and its chancellor decided enough was enough. Merkel took a very hard line in the negotiations; in fact, Germany, along with Finland, ardently supported throwing Greece out of the eurozone and letting the country take care of its financial problems without any further loans.1,4
Merkel looks very good even after Germany’s apparent conciliation to the pleas of France, Italy and other European Union members that argued for the necessity of a third Greek bailout. As she commented, “The advantages [of the deal] far outweigh the disadvantages.”2
The loser: Alexis Tsipras. Tsipras and his left-wing Syriza party have all but written themselves out of Greece’s future. After disparaging the austerity measures Greeks live with and praising the Greek people for the “very brave choice” they made in voting against another bailout, Tsipras signed off on austerity cuts that were even deeper.
In the end, he simply had to; for all his posturing, two financial shocks would have occurred if he had refused. Without a deal in place, Greece’s banking system could have collapsed this week. Greece also could have found itself out of the eurozone – a danger signal for institutional and retail investors.
Global markets started the week with a relief rally. Monday’s trading day found the Dow, Nasdaq and S&P 500 all rising 1.1% or higher; the STOXX Europe 600, FTSE 100 and Nikkei 225 were also up from 1.0-2.0%. The deal is not set in stone yet – eurozone parliaments must approve it – but the accord just reached relieves much uncertainty.5
1 – usatoday.com/story/money/2015/07/13/greek-bailout-talks/30068857/ [7/13/15]
2 – time.com/3955221/greece-bailout-marathon/ [7/13/15]
3 – blogs.wsj.com/briefly/2015/07/13/how-will-the-greek-privatization-work-the-short-answer/ [7/13/15]
4 – reuters.com/article/2015/07/06/us-eurozone-greece-idUSKBN0P40EO20150706 [7/6/15]
5 – markets.wsj.com/us [7/13/15]
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