The (Latest) Greek Rescue

by Andrew Stuttaford

Early on Tuesday Eurozone finance ministers agreed a new rescue deal for Greece that won the support of the “Troika” (the EU Commission, European Central Bank and the IMF). You can find the details here (Bruegel) and here (Open Europe). Will it work? Well, the Greek prime minister says so. Surprise!

The Daily Telegraph’s Jeremy Warner is not so sure, and puts his finger on what this latest deal is about:

Besides the dawning of a new day, the other claim made about [the] package was that it prevents a further default by Greece. This it definitively does not do. If reducing the interest rate paid on officially held debt, and greatly extending its maturity, is not a default I don’t know what is.

However, it is certainly true that the absolute write off of debt required to put Greece back on a sustainable footing has been further postponed, and is now most unlikely to be back on the table at least until the other side of German national elections in September next year. Greece must wait for Angela Merkel to be safely re-elected before anything remotely approaching long term salvation is offered.

The privately admitted justification for this state of denial is that German voters cannot be expected to approve further loans to Greece if they see that they’ve lost the money they’ve already lent in a giant write-off. Logical enough, you might think, but typical of the nationally compromised, hopelessly drawn out and manipulative way in which Europe works.

This story in the FT this morning would seem to support this thesis:

Somewhere in the not-too-distant future, according to senior officials and bailout documents seen by the Financial Times, international lenders will once again have to find more water from the Greek debt stone. Many, including at the IMF, now believe the only way to do that is through a write-down of official bailout loans, known in euro-speak as “OSI” for official sector involvement…The seeming inevitability of official write-downs goes a long way towards explaining why the Greek deal struck on Monday night, even though it comes up short, still took three all-night Brussels meetings of eurozone finance ministers over the course of two weeks to secure the deal. Some eurozone leaders are desperate to avoid such losses because the issue remains politically explosive in northern creditor countries, particularly Germany and the Netherlands, where leading politicians have vowed not to take losses on their Greek loans.

Back to Warner:

Action by policymakers over the last year seems to have succeeded in saving the euro from immediate death, but you have to wonder whether the state of chronic long term illness which has replaced the prospect of eurogeddon is really worth fighting for. For how much longer will Europe’s democracies put up with this nonsense?

Manipulated in the way that they are, for quite a while, I reckon.

So for now, it’s trudge, trudge rather than tick tock, but only for now….

The Corner

The one and only.