In terms of numbers, Greece will receive €130bn of loans and €107bn of its debt will be written off; private bond holders will take a haircut of at least 53.5% of their value, possibly rising to 70%. In return, under the oversight of permanent EU economic monitoring, Greece will cut its debt-to-GDP ratio from 160% to 120.5%.
The announcement came in the early hours of this morning but was still couched in terms such as its biggest benefit being to avoid an orderly default. Just because the European finance ministers are patting each other on the back having agreed the package, the Greeks could still throw everything up in the air, including their EU membership, by voting against the measures on Wednesday.
The first market reaction was from Asia where the euro rose against the dollar though these gains were swiftly lost. Unfortunately, this could be the story that follows Greece around, that short-term positives are outgunned by the longer-term negatives.
For the next few days, the markets will look at the move favourably as at least there is now a definite plan to resolve Greece’s debt and they will avoid bankruptcy on 20 March which without this plan was unlikely.
But there is still no certainty that Greece will come through this unscathed as a leaked document drawn up by members of the IMF, European Central Bank and European Commission suggests that Greece will need to get out its begging bowl and ask for further multi-billion euro bailouts even if it does stick to the austerity plan.
So what does this mean for investors?
The lack of expert comment (i.e. emails to my inbox) following the announcement suggest that not much has actually changed.
As even good stock-pickers continue to argue a case for investing directly in Greece, we are left with the status quo of its negative knock-on impact across Europe and its biggest external trading partners.
The good news is that Greece can now fly below the radar for a while – unless there is a repeat of the riots that greeted the last rescue package – though Europe’s debt crisis has not ended there and the macro picture is still weak.
In effect Greece has just lost its independence and the possibility of it leaving the eurozone is still there; even though it has been given a net €237bn Greece is no more financially secure than it was this time yesterday; the possibility of contagion across Italy, Spain and other peripheral countries has not disappeared although it has lessened slightly.
A political solution couched in economic terms may have satisfied most of the eurozone, but the whole Greek tragedy has a long way still to run.
