Greece is set for a third bailout

Greece and its creditors, the IMF, the European Central Bank and the European Union, have agreed a draft €86bn, three-year bailout.

15-8-13-Tsipras-634

Alexis Tsipras has clinched Greece's third bailout

Greece and its creditors, the IMF, the European Central Bank (ECB) and the European Union, have agreed a draft €86bn, three-year bailout. In return for passing a series of reforms this week, including VAT increases for the Aegean islands and a commitment to ending early retirement for workers in their 50s, Greece will get new funding, allowing it to meet next week's payment to the ECB.

The deal, which must be approved by the German parliament next week, will see Greece aim for looser fiscal targets than the creditors first wanted. It is aiming for a primary budget deficit (before interest payments) of 0.25% this year, instead of a 3% surplus. An independently monitored fund is to raise €50bn to recapitalise banks and cut debt.

What the commentators said

We may have a deal, said Jordan Weissmann on slate.com, but the fiscal targets remain unrealistic. The creditors are pencilling in annual primary surpluses of 3.5% for several years from 2018 onwards. But "countries rarely manage that sort of restraint, and politically, the ones that do tend not to look a whole lot like Greece".

And that's assuming the GDP growth estimates the fiscal targets are based on are remotely realistic, added Capital Economics. In fact, they're a "fantasy". Capital controls have starved the economy of money and caused activity to collapse. GDP is set to shrink "by 4% or worse", double the pace reportedly factored into the bailout projections.

The deal will "unravel" before the three years are up. Greece will only avoid the threat of "Grexit" if some of its borrowing is written off, said Robert Peston on the BBC. Debt relief is due to be discussed in the autumn. But the EU will be loath to concede much for fear of encouraging populists elsewhere to take arms against Brussels in hope of emulating Greece. Don't expect a "happy ending".

Recommended

Warsaw and Stockholm: the unexpected new threats to the City of London
UK stockmarkets

Warsaw and Stockholm: the unexpected new threats to the City of London

London has seen off challenges from Frankfurt and Paris, but two other booming financial centres are a bigger threat, says Matthew Lynn.
19 Sep 2021
The charts that matter: more pain for goldbugs
Economy

The charts that matter: more pain for goldbugs

Gold investors saw more disappointment this week as the yellow metal took a tumble. Here’s what’s happened to the charts that matter most to the globa…
18 Sep 2021
With the right political will, inflation can be defeated
Inflation

With the right political will, inflation can be defeated

Governments and central banks can easily control inflation, says Merryn Somerset Webb – they just need the will.
17 Sep 2021
Why are energy prices going up so much?
Energy

Why are energy prices going up so much?

UK energy prices are going through the roof, with electricity the most expensive in Europe and gas at its highest for 13 years. Saloni Sardana explain…
16 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021