Greece is one step closer to being granted its third bailout, following a weekend of negotiations among European Union member states and political will to keep the country in the eurozone.
The eurogroup announced Monday it had an agreement, after 17 hours of negotiations. “Leaders have agreed in principle that they are ready to start negotiations on a (European Stability Mechanism) program, which in other words means continued support for Greece,” said a statement by Donald Tusk, president of the European Council.
Greece has a number of strict conditions to meet, including demands for pension reforms and other fiscal policies, before the roughly €86 billion ($95 billion) bailout can be discussed further. Prime Minister Alexis Tsipras must push these changes through Greek Parliament by Wednesday.
The eurogroup has also asked that Greek assets be transferred to an independent fund, which will monetize assets through privatizations and investment. It is targeting €50 billion, of which €25 billion will be used to recapitalize the banks and other assets. The remaining bailout money will be split evenly for debt reduction and investments, a eurogroup statement said.
“What has been decided is that, at all costs, European policymakers want to keep Greece in the eurozone,” said Richard Benson, managing director, co-head portfolio investments, at Millennium Global Investments, in a telephone interview.
“The terms imposed look on the face of it pretty savage and a lot worse than what could have been agreed prior to the referendum” July 5, which saw the Greek people reject EU-imposed austerity plans, said Colin Harte, portfolio manager and strategist within the multiasset solutions team at BNP Paribas Investment Partners, in a telephone interview.
From a market perspective, “we have come to the conclusion that Greece is worth plus or minus 5(%), 6(%) or 7% on the equity markets; the euro has not moved much,” and the bond markets have been relatively muted, too, Mr. Harte said. “We have had movements like this on normal days with no news flow.”
Mr. Benson added that investors are “hopefully putting Greece to the back burner. We will have three days of messy noise, and I don't really understand how Greece will get this through, but I think they will have to.”