David Zahn, head of European Fixed Income, Franklin Templeton Fixed Income Group
One chapter of the Greek debt saga closed on Wednesday (July 15) with the country’s parliament giving its approval to a fresh bailout plan agreed to earlier in the week by Prime Minister Alexis Tsipras and European Union negotiators. But it’s by no means the final chapter. The bitter arguments that have brought Europe to this point will take much longer to heal. David Zahn, head of European Fixed Income, Franklin Templeton Fixed Income Group, believes the eurozone could emerge more integrated, but he says some fractures have emerged that need attention first.
Overall it seems to us that the new bailout deal agreed to by the Greek government and its creditors on Monday (July 13), and now approved by the Greek parliament, is worse for the Greek people as it is likely to lead to further austerity than the one put before the Greek voters—and rejected—in a referendum at the beginning of the month.
I don’t think that’s surprising given that both the economic situation in Greece and political relations between the Greek government and its creditors have deteriorated since the referendum vote. It seems clear, however, that the Greek authorities decided that the most important thing was to stay in the euro.
I wouldn’t say, as some commentators have, that the possibility of Greece leaving the eurozone has now been eliminated, because there are still some hurdles to overcome to bring this deal to fruition, but Greece’s parliamentary approval means the probability has been greatly reduced.
What the Greek parliament has now approved is really little more than an understanding, and in our view, a number of outstanding issues have the potential to create problems or controversy before a final resolution is reached.
It is likely to take several months to finalise the details of the agreement, including securing further parliamentary support not just in Greece but in a number of other eurozone countries, as well as implementing further reforms and securing interim funding. We’re probably looking at September as a realistic time frame.
From the standpoint of an investor in the wide eurozone region, once we get through the raft of approvals, amendments and changes to the judicial system that the latest deal demands, the region should be a much calmer place for investing.