Bailout Athens Lacks Wiggle Room

BarroMetrics Views: Bailout Athens Lacks Wiggle Room

Peter Spiegel wrote an interesting piece in today’s FT (Bailout Athens Lacks Wriggle Room as Wrangling Rumbles On). Unlike many of the other pieces on Friday’s agreement, Peter’s piece focused on facts rather than the writers’ opinions. Unfortunately, I was unable to find the article with a Google search. Here is my summary….

Peter identified that Friday’s agreement failed to address many of the important issues affecting Greece’s finances.

Firstly, the Greek government won office when it promised relief from the country’s sovereign debt – amounting to 175% of GDP. Friday’s deal did not touch on the subject.

Secondly, while Greece’s creditors were willing to lower the surplus they required for this year, they agreed to do so because the Greek economy was performing worse than expected. This place the Greek issue into a quandary: on the one hand, the government won a measure of flexibility on the amount of cash that would be freed up; but on the other, that flexibility was limited because of the economic downturn.

But there is a deeper ditch that may cause a problem in the future: there was no mention of how much lower the targets would be allowed to go.

(By way of context, under the prior bailout scheme, Athens was required to run a primary surplus of 3% of GDP for 2015. That will now be reduced but by how much?).

Thirdly, the agreement was dependent upon the creditors agreeing to a list of economic reforms that the Greek government would implement to take the place of the old “austerity” measures. Whether or not the new measures will satisfy the EC has yet to be seen.

Finally, and possibly the most important, is when can Greece access the 7.2 billion? The timetable for dispersing the bailout was not discussed on Friday. This is the $64 question. It will be interesting to see whether this issue will be resolved without further crisis.