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Terry Murden: Keep those fingers crossed for Greek debt deal

Greece's ongoing troubles have posed questions regarding the nation's sovereignty. Picture: Getty

Greece's ongoing troubles have posed questions regarding the nation's sovereignty. Picture: Getty

  • by TERRY MURDEN
 

DEADLINES come and go on the Greek debt crisis but, by tonight, we will find out how much commitment there is to giving the country a fighting chance – or at least another opportunity to hold back the flood waters.

At this juncture, and with few other options available, the prospect of private investors refusing to back the massive debt relief deal and allow the bail-out process to kick in is simply not worth contemplating. To do so would plunge the eurozone back into an even bigger hole and send the markets into a frenzy.

So it is with some crossed fingers and deep prayer that we get through this latest vote, investors take a 75 per cent haircut on their holdings, Greece gets its bail-out money and the euro survives.

But it looks like being a close-run thing. Greece wants 90 per cent of bondholders to approve the package and last night a little less than half were publicly prepared to do so. With 70 per cent backing, it could still get its way.

Royal Bank of Scotland is among 30 banks who yesterday offered to join others supporting the deal. Last month it wrote off £1.1 billion of its £1.4bn exposure but could see that ease back to £1.05bn if there is agreement to reduce the size of the haircut from 79 per cent to 75 per cent.

Considering the enormity of the debt, a £50m clawback may not seem like much, but it would enable RBS to exchange bonds currently valued at 21p for 25p.

The Institute of International Finance, the main bondholder group that has been leading the debt talks, has warned that failure to reach agreement risks a disorderly default while the Greek government, for once appearing to be holding the gun to someone else’s head, says that rejection would leave investors empty-handed.

Some analysts have accused the IIF, representing the largest creditors, of deliberately alarming investors into backing the deal, but maybe that’s what it will take to get a decision.

Aside from steadying Greece’s finances and bringing stability to global markets, there are political consequences to be considered. If a deal is not in place by tonight and Greece fails to meet a debt repayment by 20 March then it will appear that the politicians have once again lost control.

Even if the vote goes through, suspicions will remain that the Greeks will still fail to meet their obligations. One of the aims of the rescue package is to scale back the debt so that by 2020 it represents 120.5 per cent of gross domestic product. Economists at the Royal Bank of Scotland say that is optimistic and can see it still being as high as 160 per cent, clearly well short of target.

RBS questions whether Greece can achieve the growth projections expected and believe its economy will shrink this year by more than that forecast. Should Greece still have such a high level of debt, it will have implications for other nations left holding it. Such is the price we are all paying for the flawed single currency experiment.

SNP can’t say they weren’t warned

Scottish politicians were warned what might happen if they went ahead with the controversial retail tax. Asda now says it is reviewing its investment plans in Scotland after MSPs yesterday threw out a late attempt to have it scrapped.

From 1 April big stores that stock cigarettes and alcohol will have to pay a supplement on their business rates. As property consultancy Ryden warned in Scotland on Sunday last month, Asda will face a £27 million additional bill for its Scottish stores. For Tesco, the bill is £36m.

It’s enough for Asda to warn that it could tip the balance away from investing in Scotland and that will have huge implications, given that the supermarkets have been among the biggest creators of jobs in recent years.

The Scottish Government insists that there is no evidence of large retailers postponing investment in Scotland because of the levy.

Well, there won’t be, because – until yesterday – the final hurdle had yet to be cleared for this law.

The government is right to say that Asda has recently announced plans for more stores and a depot in Scotland, but no-one is suggesting any of the retailers will abandon their existing network or stop spending entirely. What the government needs to note is that future plans may be scaled back.

 

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