The FTSE 100 has recovered 4.4% in the past week, to around 6,735 points, as evidence of a last-minute capitulation by the Greek government has been mounting. Yesterday, when we learned that a newly agreed proposal had been taken back to Greece for ratification, the UK’s top index added another 65 points, and even though the deal is still far from certain, the market is holding steady so far today.
To get more cash, what Greece must do by the end of Wednesday is enact legislation that will make pensions savings, raise VAT, increase the flexibility of the jobs market and accelerate the privatisation of state assets.
In return, Greece will get another bailout of up to €86bn, which is desperately needed in order to immediately pay some of it back!
But what it won’t get is a reduction in any of its debt, even though everyone from your humble writer up to the IMF itself knows it can’t be repaid. Germany has put its foot down and would rather see Greece booted out of the euro than forgive a single cent of it (despite Germany being the European country that has had by far the most of its own debt written off over the past century).
Now, greater jobs flexibility and faster privatisation make a lot of economic sense and would help bring Greece closer to 21st-century European norms, but squeezing pensions and raising VAT will harden the austerity the Greek people are already facing, and seem to fly squarely in the face of last week’s “No” vote in Greece’s referendum — but it appears the Greek government takes its orders from Germany now, not from the Greek people.
Democracy, what’s that?
And in a further sign of the principles of democracy having been binned, prime minister Alexis Tsipras is set to get rid of opposition in his own cabinet, having already dumped the popular (in Greece, but not liked by the eurocrats) finance minister Yanis Varoufakis.
Many of us who want to see an independent Greece with a brighter future for its young people will want to see this proposal scuppered by Mr Tsipras’s opponents, and there’s still time, but what would an agreement do for European markets?
The past week’s calm is just an illusion, as a new helping of fudge will surely only delay the inevitable — Greece should have dumped the euro in 2010 when the stream of sugary confectionery was turned on. And for a short-term respite from the current turmoil, the markets of the eurozone will be paying the price of longer-term uncertainty.
Those who have lent money to Greece are going to face a so-called haircut sooner or later, that much is for sure. Euro-politicians need to face up to the reality of that, and investors should be careful when they invest in banks that are shouldering any significant part of it — Deutsche Bank shares have picked up in the past week, but they’re still down 11% since April, and our own HSBC and Barclays are on Greece’s list of creditors.