After a marathon 14-hour summit, the details of the expected Greek bailout and the PSI debt swap finally materialize. But it is no cause for celebration, as a number of daunting challenges remain before Greece can be rescued.

The terms of the second Greek bailout did not hold any surprises, as the lack of reaction from the markets suggests. The details of the deal were discussed all last week, and they seem to be broadly as follows:

- a 53.5% haircut for bondholders, with lower interest payments on their new Greek bonds before 2020 and higher afterwards;

- European governments accept lower rates on their lending to Greece to 150bps over Euribor from 200bps or more, and doing so retroactively. The ECB and national central banks give up ‘profits’ made on holdings of Greek debt and handed over to Greece;

- the IMF to make a still undeclared contribution; and

- use of escrow account for debt payments, as part of measures to ensure enforcement of terms.

The agreement does little to alter the hard reality of Greece’s debt mountain. Steven Englander, part of Citi’s FX team, says: “It looks as if there was some moderate compromise on the private side and bigger realization among governments and central banks that there was a limit to how much of the incremental burden bondholders would accept.”

For the euro it does seem that the majority of good news is priced in, but uncertainties remain. A key question is whether central banks also suffer a haircut. They do, says Englander, “but there is a degree of deniability in the way the hits are structured. European governments are also putting in more than they had suggested they would. But, overall, the surprise is the elimination of failure risk, not that they came up with something revolutionary that made Greek debt significantly more sustainable than expected.”

The next question is whether the private sector will accept the terms, or force a decision on the Collective Action Clause. This could also trigger the CDS contracts, finally bringing about the default.