The Greece bailout deal is just step one

Our Greece Managing Director looks at the challenges immediately ahead for the country following the weekend’s marathon EU summit and €86bn agreement.

The Greek parliament must now vote for specific prerequisites in order to secure the €86bn third bailout, and many of these requirements will test the government's majority.

Changes within the two-party majority government are expected but since for the first time in five years, opposition parties are realising the dead end that the Greek economy is facing, these prerequisites are expected to pass through the Greek vote.

Now that Grexit is seemingly off the table the big challenge the Greek economy will face over the coming weeks will be the implementation of the many requested reforms.

Who will take ownership of these changes within the political system is still an open question, and I’m sure it will be determined based on whether we consequently see growth take the upper hand over recession. Once clarity comes, we’ll see what the politicians really thought.

These reforms are in the direction of a more open and competitive market regulation, however political stability is imperative so that we do actually see legislation pass within the fixed time schedule:

  • A deadline of 15 July to implement VAT increases, reduce pensions, ensure the legal independence of Greece ELSTAT (the statistics office) and introduce measures to automatically cut spending if Greece doesn’t meet its  primary surplus targets.
  • The government has until 22 July to implement further requirements including the BRRD – Bank Recovery and Resolution Directive, and move €50bn of Greek assets to a privatisation fund.

Capital controls in the banking system will continue for a period of time and the bank holiday is ongoing, but it is crucial that the new Memorandum of Understanding with the institutions is signed promptly in order for Greek banks to be provided with more funds.

The MoU budget lowers the risk of a deposits haircut. The next three to four weeks will clear the unknown variables of this difficult equation and we expect a certain security in the way business will be conducted from now on.

If the abovementioned actions expected from the Greek political system and from the institutions deploy well the PESTEL (Political Economical Social Technological Environmental and Legal) analysis will soon enough be in favour once more for investing in Greece.

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