Greek bailout deal.

21st February 2012

Ian Copelin, Investment Director, my wealth, comments “Despite news that Greece had secured enough concessions from private investors to win a second bailout from European governments, the FTSE-100 has today retreated from a seven-month high as the market is now speculating that the bailout deal won’t solve the nation’s debt crisis.

After 13 hours of talks in Brussels, European finance ministers approved the €130 billion bailout package in a deal where private creditors will write-off 53.5% of their principal and exchange their remaining holding for new Greek government bonds and notes from the European Financial Stability Facility (31.5% will go into 20 new Greek government bonds with maturities between 11 and 30 years and the remainder will go into short-dated securities issued by the EFSF).

The agreement will reduce Greece’s debt burden by €107 billion – without the write-off, Greece’s debt would probably have been twice the size of its economy (which is shrinking fast – Greece is in its 5th year of recession and during 2011 Greece saw its economy contracted 6.8%) by the end of the year.  Even with the deal Greece’s debt is still expected to be around 120% of GDP by 2020 (although a European and International Monetary Fund analysts recently highlighted that Greece’s debt could be as high as 160% of its GDP in 2020 as the country will find it difficult to grow without being able devalue its currency).  In addition, there are concerns over whether or not the next Greek government (elections are scheduled to be held in April) will enforce the austerity measures after they have received the bailout package.

The FTSE-100 is currently down 20 points (0.33%) at 5,925.”