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

Plenty more Brexit arguments to be settled yet
Brexit

Plenty more Brexit arguments to be settled yet

Many important negotiations remain to be sealed in our deal with the EU. “No deal is better than a bad deal” is the way to play it, says Matthew Lynn
10 Jan 2021
Will 2021 hold one last deflation scare?
Global Economy

Will 2021 hold one last deflation scare?

With many looking ahead to a world of high inflation, John Stepek looks at a couple of potential scenarios that could give the world one last deflatio…
28 Dec 2020
Will a stronger euro ruin Europe's rally?
European stockmarkets

Will a stronger euro ruin Europe's rally?

International investors have been buying into European stocks, driving the euro higher. But that surge now risks dampening the recovery that started i…
21 Sep 2020
No deal is the best deal for Britain – and the EU too
Brexit

No deal is the best deal for Britain – and the EU too

Europe has a lot to gain from a thriving, independent Britain, says Matthew Lynn.
6 Sep 2020

Most Popular

Bitcoin does consume a lot of energy – but here’s why it’s worth it
Bitcoin

Bitcoin does consume a lot of energy – but here’s why it’s worth it

Some people question bitcoin’s legitimacy because it uses huge amounts of electricity to maintain its network. But that’s not a failing, says Dominic …
27 Jan 2021
Joe Biden’s spending spree will lift American spirits and markets – but it comes with a sting in the tail
US stockmarkets

Joe Biden’s spending spree will lift American spirits and markets – but it comes with a sting in the tail

New US president Joe Biden is planning to throw trillions of dollars in stimulus at his country’s economy. Markets will love that. But it comes with a…
25 Jan 2021
Think Tesla is a bubble? This might be the best way to bet on it bursting
Oil

Think Tesla is a bubble? This might be the best way to bet on it bursting

The huge rise in Tesla’s share price means that, by market value, it’s now the sixth-largest company in the US and and the world’s biggest car-maker. …
25 Jan 2021