Financial markets gave a muted reaction Tuesday
to the second Greek bailout deal, amid concerns that the rescue plan
would only buy time for Athens, while the nation still risked
default.
After rising Monday on expectations that European finance
ministers would hammer out an agreement on Greece, markets drifted
back down Tuesday, following warnings from economists that the
130-billion-euro (173-billion-dollar) bailout deal might not be
enough to haul Athens back from the brink.
"We believe that the risk remains high that budget cuts will
result in Greece slumping into a depression and then slide into
default, consequently forcing it to exit the common currency,"
Berenberg Bank economist Christian Schulz wrote in a note to clients.
By early afternoon trading, shares in the eurozone's blue-chip
Eurostoxx 50 index had declined by 0.7 per cent to 2531 points,
reflecting similar falls in the 17-member currency bloc's two key
bourses - Frankfurt and Paris.
The investor mood in Greece was even more downbeat with shares in
Athens dropping 0.93 per cent to 818 points, as the enormity of the
task facing the heavily-indebted state began to sink in. Stocks in
Athens have slumped by about 50 per cent over the last 12 months.
The news of the eurozone agreement - aimed at winding back Greek
debt from its current level of about 160 per cent of gross domestic
product to 120.5 per cent by 2020 - resulted in the euro initially
rising by about 0.5 per cent, to trade close to 1.33 dollars.
The rise pushed the common currency up to its highest level
against the greenback in two weeks. But by earlier afternoon the euro
had slipped by 0.2 per cent, to 1.3214 dollars.
This followed investors' concerns that, with Greece set to lurch
into another year of recession, the nation will struggle to pay back
its mountain of debt.
Indeed, many investors and economists believe that a third package
of aid for Greece will probably be needed in the coming year if
default is to be finally averted.
"Greece should be saved, at least for the next couple of months,"
said ING Bank economist Carsten Brzeski. "However, the feeling of
relief is not likely to last for long."
Pieced together during a marathon 13 hours of talks, the agreement
includes tough structural reforms along with a 53.5-per-cent
writedown in debt by private lenders - more than previously agreed.
The European Central Bank (ECB) and the national central banks are
not part of the agreement to write down Greek debt holdings.
Instead the Frankfurt-based ECB's profit, resulting from its
holdings of Greek bonds through its government debt-buying programme,
will be returned to Greece.
But the immediate concern now is whether Greece will implement the
measures set out in the rescue package, which is aimed at helping
Greece to fulfil its loan obligations next month when 14.4 billion
euros of debt matures and thus avoid declaring default.
"For now we think that a disorderly default on March 20 has been
avoided, though the national ratification process may cause some
minor hiccups," said Danske Bank senior economist Frank Oland Hansen.
Several national parliaments, including in Germany, still have to
sign off on the package of aid.
In addition, while the largest part of the aid will come from the
European Union-led European Financial Stability Facility rescue fund,
the size of the International Monetary Fund's contribution to the
package is still to be determined.
