Second Greek bailout: who’s saying what?

It may still be subject to a vote in a number of European parliaments, but the proposed €130 billion bailout package for Greece was never likely to move through the markets unmentioned.

The second bailout proposal, which is set to be funded by a combination of the EU and the IMF, was agreed in the small hours of Tuesday morning and is expected to include a proposed ‘voluntary’ haircut of 50% on all privately held Greek debt.

So how have the leading market commentators and managers taken to the news?

Adding some levity to proceedings was Dutch finance minister Jan Kees de Jager. He revealed on Twitter he concluded the 14 hours talks on the Greek bailout to find himself locked out of his Berlin hotel room. There was little sympathy online.

Here Citywire Global rounds up some of the top takes on the bailout proposal:

Fund managers

Richard Woolnough, manager of M&G Optimal Income fund

‘This deal will cause the private sector to suffer a disproportionate level of losses both in absolute and relative terms to the public sector. This punishes the private sector investor in Greek debt relative to the private speculator who was short Greek debt.’

‘The problem with the PSI procedure is that it does not reward these economic agents accordingly. This PSI precedent means that in the future, should a government debt crisis occur, private investors will be less willing to support troubled government debt, and speculators will be rewarded for being short.'

'Obviously this will impact the sustainability of government finances at precisely the time they would be seeking to generate confidence in their ability to service their debt obligations.’

‘What does this PSI look like in pounds, shillings, and euro cents? Those investors that are short Greek debt will make money, the legal power of the state means the authorities suffer no damage, while the private sector will suffer losses. The locusts will feed well, the authorities will not eat less, and the private investor will waste away.’

Andrew Cole, manager of Baring Multi Asset A Inc

‘Our view remains that the economic prospects for the eurozone are poor in the short and medium term, with a recession likely this year and perhaps next.’

‘However, with some of the obvious structural risks now mitigated, we believe there is investment potential to be found in European equities, particularly where their business is primarily derived from outside Europe, and in certain areas of the European debt markets.’

‘In particular, we recently increased exposure to Italian debt across our range of multi-asset strategies, attracted by yield levels and declining systemic risk in the region following action by the European Central Bank.’

Bill Gross, manager of Pimco Total Return Bond fund

In a Tweet sent ahead of the talks, the influential bond manager suggested moves to have private investors volunteer for 50% haircuts would be damaging.

His Tweet read: ‘ECB subordinates all Greek debt holders & in so doing subordinates all holders of Euroland sovereign debt.’

Market commentators

Felix Salmon, ‘The improbable Greece plan’, Reuters

‘The plan assumes that Greece’s politicians will stick to what they’ve agreed, and start selling off huge chunks of their country’s patrimony while at the same time imposing enormous budget cuts. Needless to say, there is no indication that Greece’s politicians are willing or able to do this, nor that Greece’s population will put up with such a thing.’

‘It could easily all fall apart within months; the chances of it gliding to success and a 120% debt-to-GDP ratio in 2020 have got to be de minimis.'

‘Europe’s politicians know this, of course. But at the very least they’re buying time: this deal might well delay catastrophic capital flight from Greece, and give the Europeans more time to work out how to shore up Portugal if and when that happens.’

‘Will they make good use of the time that they’re buying? I hope so. Because once the Greek domino falls, it’s going to take a huge amount of money, statesmanship, and luck to prevent further dominoes from toppling.’

Ed Conway, ‘Greece: Known Knowns, Known Unknowns and Unknown Unknowns', Sky News

'Bear in mind the accuracy of the bail-out authorities’ previous economic forecasts: they thought only a couple of weeks ago that the year-on-year contraction in the final quarter of 2011 would be 5%. In fact, it turned out to be 7%. One more misjudgement of that kind and the entire basis of this second bail-out will be thrown into question.'

'The deal with creditors is far from complete. It is reliant on convincing 95% of all private sector bondholders to actually submit their investments to be ritually stripped of more than half their value.'

'There is a palpable chance that this target is missed, particularly given there are some hedge funds heavily invested in the deal who may see this as an opportunity to leverage their influence on the situation (or at the very least minimise their losses).'

'Even if the deal goes ahead, it may nonetheless constitute a so-called “credit event”, triggering billions of dollars of credit default swaps across the financial system. It was this eventuality that caused such panic after the collapse of Lehman Brothers in 2008.'

'The decision on whether this is just such an event is taken not by anyone in government but by a committee of bankers convened by an independent agency called ISDA.'

Robert Peston, ‘Greece: dangerous precedent?’, BBC Business

‘Before we crack open the vintage Ouzo, let's just see how it goes down with the relevant private-sector lenders, politicians in the only creditor country that really matters - Germany - and Greek citizens, who are being asked to sign up for years of declining living standards with no promise about when and whether the better times may return.’