By Holly Ellyatt, CNBC
With the deal yet to be ratified and time ticking, Dean Turner, economist at UBS Wealth Management, said on Tuesday that the risk of Greece leaving the euro zone – a so-called “Grexit” had not altogether disappeared.
“Whilst an agreement may have been reached and Greece looks increasingly likely to meet the 20th August payment deadline, we are not out of the woods yet,” he said in a note Tuesday.
“In spite of Greece reaching a technical agreement in principle, the risk of Grexit has not disappeared altogether. There are a number of challenges ahead, including securing passage through the Greek parliament, and some other European parliaments including Germany,” Turner added.
“Furthermore, other headwinds may emerge in the event of a snap general election and the future debt restructuring talks.”
Thorny issues
Ahead of Tuesday’s announcement, it was reported that Greece and international lenders had agreed to baseline scenario projections for a primary surplus in 2016 and 2017 as part of broader bailout conditions.
A Greek government official also told Reuters that the two sides had agreed on a wealth fund to handle privatizations, and how to address non-performing loans in its banking sector. Both sides said there were other “minor details” to be ironed out but would not elaborate.
Although many aspects of a rescue deal have been agreed, before Greece can receive any money it has to complete a list of 35 “prior actions,” including the introduction of new laws on non-performing loans held by banks and the controversial scrapping tax breaks for farmers, according to a Reuters report.
One issue not mentioned was also the thorny issue of debt sustainability, however. Greece has the highest debt pile in Europe, forecast to reach 180.2 percent of gross domestic product (GDP) in 2015, according to the European Commission.
One of Greece’s lenders, the International Monetary Fund (IMF) has said recently that it would not even participate in a third bailout for Greece without debt restructuring but the issue was not mentioned by the Commission on Tuesday. Furthermore, Greek banks require recapitalization and capital controls, introduced to stem deposit withdrawals at the height on the Greek crisis in June, remain in place.
As such, many thorny issues in Greece needed to be addressed, one market analyst warned on Wednesday.
“While compromises have been made on the subject of primary surpluses, these are a mere rounding error when set against Greece’s debt sustainability, the questions surrounding IMF participation, as well as the ability of the Greek government to actually meet the targets being set, at a time when the latest economic data for July doesn’t appear to have been reflected in the bailout agreement,” Michael Hewson, chief markets analyst at CMC Markets said Wednesday.
“Greece’s economy fell off a cliff in July and while capital controls remain the damage being done to the banks, as well as Greek businesses, remains unquantifiable with respect to the amount of bad loans, as well as the money needed to the recapitalization the banking system.”