There are three related rules of thumb to apply to Greek bailouts. First, remember agreement does not guarantee a good deal, let alone permanent salvation. Second, in assessing the above, ask whether it is really credible that Greece’s debt-to-GDP ratio will fall to a sustainable level as a result of the plan. Third, bear in mind that financial markets’ euphoria for Greek deals tends to last only about 48 hours.
All will be relevant in coming days, now that the action in Brussels is generating a whiff of optimism. Thursday is billed as the moment that six months of negotiations and standoffs will conclude with compromise and agreement.
In broad outline, Athens may be ready to concede a few more reforms, even if economy minister Giorgos Stathakis told the BBC that these do not involve crossing the ruling Syriza party’s “red lines”. In return, the eurozone creditors may accept that debt relief will be required in the future, provided Athens sticks to its pledges.
As a script, it’s an improvement on mutual hostility. But the glaring hole is likely to be the lack of detail on debt relief. An agreement in principle to revisit the issue would represent yet another exercise in pain-deferral on the part of the lenders.
Greece’s debts stand at almost 180% of GDP. In the first two bailouts, the ambition was to get to 120% by 2020, even if few outsiders thought the target plausible. Jonathan Loynes at thinktank Capital Economics reckons an even bigger reduction is required. “Once realistic economic assumptions are made, a debt write-off of as much as 50% is needed to bring the debt-to-GDP ratio down to a sustainable level,” he said.
Barring a truly miraculous turn of events, a write-off of that size will not be contemplated. The creditors aren’t going to start discussing how to divide €160bn or so of losses; nor do they seem ready to talk about how to conjure a smaller sum by pushing repayment dates over the horizon or tweaking interest rates. Investors know that, of course, which is why relief in markets may be short-lived.
The temptation is to think that a negotiation that has had such a stormy passage will produce a definitive outcome. With Greece, life never works that way.
Thorntons’ sweet deal
We’ll miss Thorntons as a public company. It’s been a reliable source of easy headlines about sweet success melting away in a sticky summer. Still, a generous-looking takeover bid from Ferrero, the Rocher folk of badly-dubbed advert fame, allows one last hurrah that imagines Thorntons shareholders declaring “ambassador, you’re really spoiling us.”
A cash offer of £112m, or 145p, looks favourable to the recipient. It’s a premium of 43% to last Friday’s share price and about 20 times last year’s earnings. Unsurprisingly, Ferrero has been able to gobble 29.9% of Thorntons on the spot and secure acceptances on another 4%.
Victory, then, is virtually guaranteed. But why does Ferrero want Thorntons? The brand is well-known but buying other people’s brands is out of character for the family-controlled Italian outfit that owns Nutella and Kinder eggs. Nor does Ferrero own or run shops.
A desire to expand in the UK seems to be one reason. Another may be the idea that Thorntons, as part of a bigger chocolate box (Ferrero has annual sales of €8.4bn), will be better able to resist pricing pressure from supermarkets. Whatever it is, £112m is small change for Ferrero – a case of suck it and see.
RBS hit by airport delays
This is sloppy by Royal Bank of Scotland or Sir Howard Davies, or both. Davies’ planned appointment to the bank’s board today, ahead of his elevation to the chairmanship in September, has been delayed because the great man is too busy. The Airports Commission, which Davies chairs, hasn’t yet reported.
From a time-keeping point of view, the decision is sensible. But somebody hasn’t been paying enough attention to dates. There was always a risk that the commission would struggle to opine before the end of June. A pre-election gagging order was in place and a soon-after-polling-day ambition was vulnerable to slippage. Thus RBS’ embarrassing late withdrawal of the resolution to elect Davies at today’s annual meeting.
No harm will be done, assuming Davies can tear himself away from the Heathrow/Gatwick conundrum within a fortnight or so and take the chairman’s seat on time. But the decision to delay arrival on the board could surely have been made a week ago. Best of luck in getting Williams & Glyn, the new bank, out of RBS on schedule by the end of next year.
