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Greek debt deal: Many questions remain

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Petros Giannakouris/AP

(Read caption) Greek Finance Minister Evangelos Venizelos speaks at the Finance ministry during a news conference in Athens on Thursday. European Union leaders reached a landmark deal, which requires banks to take on 50 percent losses on Greek bonds. But the Greek debt deal hasn't solved the crisis yet.

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Wednesday’s announcement that a deal had been reached by the European Union members does not end the debt crisis. At best, some immediate uncertainty has been addressed. But without more information on the details, including how the announced actions will be implemented and, most importantly, who will actually pay for them, the crisis is far from solved.

Nevertheless, the markets clearly approved the Greek debt deal and stock prices have risen sharply. At this point, investors are eager to latch on to even the slimmest glimmer of hope that legislators have finally set the eurozone in the right direction. Have they?

A key element of the debt deal centers on the treatment of Greek debt held by private investors. The European banking system agreed to take a “voluntary” 50 percent write down. This action alone will save Greece more than $140 billion as this debt matures.

But, of course, there was nothing voluntary about this at all, and investors had little choice but to accept the write down. Describing the revaluation in this manner is simply a clumsy attempt to avoid the triggering of a credit event, which would result in Greece receiving a default status from the ratings agencies.

In reality, the percentage of the write down was one of the sticking points threatening to scupper the deal right up until the final hours of the summit meeting.

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