Greek Rescue Is Not the End of the Story

by Simon Nixon

Wall Street Journal
February 20, 2012

After weeks of brinkmanship, bad blood and missed deadlines, a Greek debt deal may finally be within reach. European finance ministers will meet on Monday to decide whether to approve a €130 billion ($170.9 billion) bailout package designed to bring Greece's debts down to 120% of GDP by 2020.

At times in recent days, a deal had seemed impossible, given the near complete collapse in euro-zone trust in the Greek political class in general and opposition leader—and likely next prime minister—Antonis Samaras in particular. Even now, a deal remains conditional on Greece agreeing to further humiliating sacrifices of sovereignty with bailout money ring-fenced to prioritize payment of debt interest and the euro zone given enhanced powers of scrutiny over Greek affairs.

But a deal will be a relief for Greece, the euro zone and the markets: A hard default would almost certainly lead to Greece leaving the euro zone with unknowable but potentially catastrophic circumstances. Of course, Greece will still have to jump through plenty more hoops before it actually receives the money. The bailout depends on Athens successfully securing about €100 billion of debt relief from private sector bondholders, whether through a voluntary deal or the triggering of collective action clauses that will need to be retrospectively attached to the bonds. Greece also still has to comply with about many ore than 20 outstanding conditions under its previous €110 billion bailout.

Meanwhile the bailout will need to be ratified in a number of euro-zone national parliaments, including Germany, Finland and the Netherlands, all of which have reservations over the deal.

Whether the relief at a deal is short-term or more lasting depends on what happens next. This second Greek bailout will only contribute to a resolution of the euro crisis if European policy makers recognize it is just a step in what is sure to be a long process tackling the flaws in European monetary union and not the last step in that process.

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