There have already been many articles written dissecting the results of Monday night’s Eurozone summit. Early reactions to the summit were positive, but more recent reactions from the markets have been more muted. These more sober reactions by financial markets are not surprising, since this has been the trend all along in watching how markets respond to EU summits. The case for market pessimism, however, is based on more than the extant empirical trend. Thinking about the manner in which the results of the summit were made public indicates a number of problems which may scuttle the Greek program altogether.
In the first case, the public details are not the whole story. The solutions offered to Greece (in the form of lowered interest rates, lengthened maturities and a repatriation to Athens of ECB profits) are all on the basis of assessments of how Greece’s debt will change over time. This debts sustainability analysis was not released to the public. Instead, it was leaked to the Wall Street Journal and the Financial Times. This is nothing new, as these leaks also occurred earlier this year as the IMF was preparing its letter of intent. This is a pattern that needs to stop. The “troika” (comprised of the IMF, the ECB, and the EU) needs to be much more transparent about how it conducts its business. This is the only way to convince the market that they are taking appropriate steps and insure its buy-in.