Euro zone finance ministers and the International Monetary Fund clinch agreement on reducing Greece's debts - but other bailed-out countries may view the deal with some envy, says JPMorgan Asset Management's Tom Elliott.
LONDON, ENGLAND, UK (NOVEMBER 27, 2012) (REUTERS) -
JPMORGAN ASSET MANAGEMENT GLOBAL STRATEGIST, TOM ELLIOTT,
"I think they will be negotiating again in perhaps less than six months' time, but I don't think there's any real threat in the near term, between now and September 2013, of Greece being forced out of the euro. And the reason is, we're waiting forAngela Merkel to be re-elected next to autumn. And from that point onwards, the indications are that we can expect German, or we can hope for German backing, for official sector involvement in writing off debt.
Earlier this year, we had the private sector being forced to take haircuts if the official sector - i.e. the ECB, EFSF - starts to take haircuts, then that will be real progress in eating into the debt. But I don't think we're going to see that until after Angela Merkel is re-elected so we're just pushing the can down the road until then.
QUESTION: Okay. So if the official lenders are to take a hit on the loans, that will be as you say after 2013, probably much after. But out with that, the package of measures agreed, I mean it's pretty much as good as could be expected?
Yes. I should add, they're all based on heroic assumptions about growth. We're talking about an economy where industrial production dropped by 7% in the third quarter, over the third quarter the year before, where they're still running a current account deficit of 6% of GDP reflecting the fact that domestic prices of saleable goods abroad have not fallen much. So, you know, there's a lot of work that still needs to be done. And as I've said, a lot of heroic assumptions went into the numbers that we saw released last night regarding forecast of GDP, debt to GDP.
QUESTION: Well, heroic or widely optimistic some might say. Finally, will other countries who are in need programs, I'm thinking Ireland and Portugal, will they look at the terms agreed here and think, Hold on a sec, we want better terms too. And perhaps even Spainwho's not yet in the program but probably will be sometime soon?
Absolutely. I mean there is a case of moral hazard here. And certainly one of the arguments about why Spain hasn't yet sought any aid under the OMT is because it wants to ensure that it is not bound by onerous conditionality in the process. And either thought that it could go to the Eurogroup and say, Hey, you've been easing up onGreece, ease up on me especially when you see what I've done at the CentralMadrid level. My hands are tied regarding the provinces, but I've really already done so much restructuring at the Madrid level, federal level. So go easy on me, after all you're going easy on the Greeks. I can see that happening absolutely."