Market wants to see more than just a compromise on debt relief

The game is not over yet for Greece, only the first half, according to economists who shared their conclusions about last week’s Eurogroup decisions with Kathimerini. They spoke of an agreement that was the best the country could get at this stage, offering investors a positive outlook and reducing Greek bond risks, even if the plans for the “French mechanism” – viewed as a stronger tool for improving Greece’s credit profile – were abandoned.

Market professionals say that the debt relief plan reduces the country’s funding needs as a ratio to gross domestic product, which means that the current risk of 10-year bonds is minimal, if not zero. They estimate that Greek bond yields will start to resemble those of Portugal more closely, leading to the re-rating of Greek stocks, especially in the bank sector, as well as many blue chips.

“The exit from the program is a very small step in the right direction, but the eurozone cannot be satisfied with the level of Greece’s debt,” Steen Jacobsen, chief economist at Saxo Bank, told Kathimerini. He underscored that the 2012 Eurogroup agreement had provided that the easing of the debt would bring it down to 110 percent of GDP, while its current trend is toward 200 percent. He added that Greece is getting a fair deal that oozes political compensation over the migration issue. He noted that reforms have stopped, exports are growing sluggishly and Greeks are still avoiding returning their cash to Greece. Worse, unemployment is only decreasing slowly. “I am a great fan of Greece, but selling this agreement as a victory is wrong. In these World Cup days, the agreement was the end of the first half, it’s still 0-0, but the next 45 minutes – i.e. the 18 to 24 months to come – will test the team,” Jacobsen said.

“The deal was far above expectations, but what Greece is missing is measures toward growth,” Alberto Gallo, macro credit chief at Algebris Investments, pointed out. He said the 10-year loan extension was a positive surprise, but the French mechanism linking the debt measures to the course of the GDP would have been ideal.

“There will be increased surveillance that will reduce political risk and contribute toward the fulfillment of crucial reforms,” argued Raffaella Tenconi, an economist at Wood & Co, adding that entering the ECB bond-buying program would have given a stronger sign to investors.