The second Greek bailout does not bring the needed adjustments to ensure that we will not deal with this issue in the following months again. Here is the official communique from the Eurogroup.
I find the new deal relative to the previous one very weak and unchanged where it mattered.
First of all the nominal haircut has been increased fro 50% to 53.5% which by any measure will not be enough.
Second of all the debt to GDP ratio for 2020 has remained unchanged at 120%. A good exercise here would be to take the GDP estimates that give you the 120% ratio and lowered them by only 0.5% every year. Would the ratio still remain at 120%? Definitely not.
Third, the Troika still pushes on austerity measures. Here are few examples:
“…additional structural expenditure reductions of € 325 million to close the fiscal gap in 2012…” or “…further major efforts by the Greek society are needed…” or “…Greece must achieve the ambitious but realistic fiscal consolidation targets so as to return to a primary surplus as from 2013…”. This is not the way to bring Greece to growth in a recessionary environment. It might work in boom times but not now.
For me it is hard to imagine how you justify another 7 years of hardship for the Greek economy only to achieve 120% debt to GDP ratio in the best case scenario. This deal as it is structures is not sustainable and irrespective of the short term market reaction I expect new talks about Greece soon.
But until we will revisit Greece get ready for Portugal to be invited at the negotiation table.
P.S. If Greece is not defaulting why does it need a bailout (or two for that matter)?
Zero hedge has a nice find supporting my view.