European stock markets closed lower yesterday and the euro weakened, reversing early gains, as enthusiasm over another massive eurozone bailout for Greece faded on concerns more will need to be done.
Now the hard work begins – reinventing Greece’s economy
Dealers said that, while the accord ticks all the boxes in terms of financing and Greek commitments, the nation’s economy remains in parlous state and Athens faces a giant task in sticking to the plan.
They said there was a sense of fatigue too – the Greek crisis has rumbled on for two years but in recent months the eurozone appears to have stabilised, helped by massive liquidity support from the European Central Bank.
On Wall Street, reopening after a public holiday on Monday, investors gave the Greek accord a muted welcome.
In London, the benchmark FTSE 100 index of top companies closed down 0.29 per cent to 5,928.20 points. In Frankfurt, the DAX 30 was down 0.58 per cent to 6,908.18 points and in Paris the CAC 40 shed 0.21 per cent to 3,465.24 points.
The euro jumped to $1.3293 within minutes of the announcement from Brussels, compared with $1.3185 immediately before but it then slipped back to $1.3256 to leave it slightly firmer on the day.
In New York, the blue-chip Dow Jones Industrial Average added 0.30 per cent by around 1645 GMT with the tech-heavy Nasdaq Composite up 0.31 per cent.
“Chalk one up for European leaders as they were finally able to agree to the second bailout package for Greece. Now the hard work begins – reinventing Greece’s economy,” said Scott Atkinson of Briefing Research.
Eurozone finance ministers agreed a new €237-billion bailout designed to keep Greece in the eurozone in return for tough budget cuts and close oversight of the Athens government.
In the immediate term, the deal avoids a messy Greek default as the country faced debt repayments of about €14.5 billion on March 20.
“Despite agreement of the second Greek bailout, market reaction has been muted to say the least,” said IG Index market strategist David Jones.
“Of course, agreement of the deal was widely expected but the underwhelmed response by markets may also be an air of caution returning because we have been here on a few occasions before.”
The deal aims to bring Greek government debt down to 120.5 per cent of gross domestic product (GDP) by 2020; just a fraction above the 120 per cent target set by the European Union and International Monetary Fund and compared with 160 per cent currently.
In exchange for the money, Greece will accept tighter surveillance by the EU and IMF, with full payment of aid contingent on Greece enacting deeply unpopular spending cuts and reforms.
Kathleen Brooks, research director at trading site Forex.com, cast doubt on Athens’ ability to meet the 2020 goal.
“Greece has got its bailout so there will be no default on March 20 – but no one believes Greece will reach a sustainable debt load by 2020, so there could be more bailout discussions down the road,” Ms Brooks said.
“This is what is concerning markets today. The immediate future may be secure for Greece – but its long-term position in the eurozone is as precarious as ever.”