Managers' verdict on second Greek bailout

US and Asian markets gave a modestly positive response to the second Greek bailout, following losses in European counterparts, as it emerged the debt-laden nation has just nine days to implement many of the conditions of the rescue.

The Greek government has until the end of February to complete the actions demanded by lenders in order to unlock the €130bn bailout agreed on Tuesday, according to the FT.

Two years ago Greece secured €110bn in its first bailout from the European Commission, ECB and IMF but the country sank further into debt.
This time around, Greece has agreed to cut pay, public sector jobs and spending in five years of austerity measures in exchange for the €130bn. It will be given partly as a loaned lump sum to the country and partly wiped off existing debt.

Yesterday the FTSE 100 closed down 0.29% to 5,928 points while the EURO STOXX 50 fell 0.34% to 2,542 as investors feared Greece may not be able to implement the terms of the deal in just over a week.

However, both markets are expected to be marginally higher this morning following gains in the US and Asia gains.

The Dow broke through the 13,000 point barrier for the first time since May 2008 yesterday and the S&P 500 was up 0.07% to 1,362.

Meanwhile the Hong Kong Hang Seng index increased by 0.22% and the Nikkei 225 by 0.96%.

Fund managers in the UK are unconvinced the second bailout package will relieve Greece of many of its problems, particularly as there is still the possiblity the stricken country will need a third bailout, and is not certain to escape default. 

Dominic Rossi, global CIO of equities at Fidelity Worldwide Investment, said: "The resolution to the Greek problem still eludes European finance ministers despite the amount of public money being made available to Greece. My view remains that at some stage Greece will voluntarily default and leave the euro.

"A Greek default has been priced into equity markets, but what is far less clear is the implications for other nations, particularly Portugal, Spain and Italy. While we appreciate progress has been made, particularly in Italy, in pursuing policies that ultimately worked in emerging markets 15 years ago, this remains a multi-year workout during which they will remain vulnerable to external shocks such as a Greek default."

Toby Nangle, head of Multi Asset at Threadneedle, said: "What I wanted to see was a deal that would deliver debt sustainability to Greece, and financial stability to Europe. It is not clear that this deal will deliver either.

"The debt sustainability plan requires economic growth, and Greece's ability to grow will determine the success or failure of the package both financially and politically. But it seems unlikely Greece will be able to grow at the pace envisaged while facing the twin headwinds of fiscal austerity and internal devaluation.

"There is a lot to do in the days ahead: Collective Action Clause (CAC) legislation will need to pass swiftly in the Greek parliament to facilitate the corral of hold-outs should they need to be corralled, votes will occur in the Finnish, Dutch, German parliaments approving the deal, and the PSI will be launched and closed before 8th March. Eurozone governments will then have the chance to review and provide final approval of the deal on 12 March.

"The Greek elections are then likely to be held in late April or early May, after which time we will learn whether the eurogroup will still have a negotiating partner."

Cheviot Asset Management's David Miller, described the package as "bailout bandage that won't take much to unravel".

"Yesterday we had the least worst outcome.The eurozone has done its best to ensure that Greece will deliver on promises, but there is still considerable scope for back tracking on deficit reduction, particularly given the tight implementation deadline.

"The deal in addition to the LTRO, and creation of the EFSF are steps towards eurozone stability, but none are more than temporary fixes. The lack of economic growth in peripheral Europe and structural imbalances are slowly being mixed into the crisis.

"This crisis has always been more about the politics than the economics. With a Greek election in April, it will be time for the voters to have their say."