An emergency summit last night saw a deal being reached over the second bail-out needed to save both Greece’s position in Europe and ultimately the survival of the Euro itself.
The financial markets reacted favourably to the deal with the banking stocks benefiting from the removal from the agenda of any levy on banks, even if this may only be temporary.
There was also no real market reaction to the rating agency Fitch’s intention to assign a selective or default on Greece. And once the dust has settled Fitch also say it intends to give it ‘….new ratings of low speculative grade’.
As a result of the deal the European Financial Stability Facility (EFSF), which was put in place in May last year, will be given powers to aid it in stopping the debt contagion spreading to Spain and Italy. It would be able to buy up struggling countries’ bonds on the secondary market as well as give them loans as well as agree lines of credit.
Greece would then be able to roll over some debt and pay a lower interest rate on the bail-out money with private investors taking a 21% drop (haircut) in the value of the bonds they hold.
These extra powers for the EFSF do need to be ratified by all the member countries first. With Germany not die to do this until September.
But Hans-Werner Sinn the head of the German think tank Ifo has come out and said that this deal would be bad for Germany. Talking to Teuters he said “The financial markets are reacting very positively to yesterday's agreements. As this is a conflict of apportionment between Europe's tax payers and investors, this is bad news for tax payers”.