As compromises go, this is no better or worse than most others. The Eurozone member States have come to the (temporary) rescue of the beleaguered Greece. Temporary, because even at €1 TN, there are real concerns that the newly leveraged EFSF is not large enough for future crises, in the short to medium term not to mention beyond that.
There are a number of outstanding questions:
- There effectively become two classes of debt: those provided by official sources such as the ECB, and the private sector bondholders. The 50 % “haircut” is expected to come out of the private bondholders’ debt. How sustainable is this, given the expectation of future default, in the possibility of raising additional credit in the markets?
- In a decade’s time, Greece’s debt will remain at 120% of GDP. Again – how much of a forward move is this, given it leaves no room for manoeuvre and future shocks the country may face.
- What is the legal status of the new bonds? Under which law will they be governed? Are there not implications for non-Eurozone EU member states in restraints on the scope of the EU budget, as it rightly affects them?
- How will the EFSF bond insurance scheme work? Will the EFSF have its own CDS?
Then of course, the insufficiently spelled out: the consequential considerations of fiscal deepening across the EU member states…the very presence of this deal strengthens the hands of those who would will greater integration on the rest of us – despite the fact that the necessity for it in the first place is sufficient evidence to the contrary.
MERCIAR BUSINESS CONSULTING 