JPMorgan about Greece

EU measures fall short of achieving debt sustainability for Greece • We analyze various measures announced at the EU summit today to alleviate sov. stress &find that, while helpful, they fall short of putting Greece on solid path to fiscal sustainability.• Our estimates suggest that Greek debt/GDP ratios will fall around 25%-pts over 5 years asa result of these measures, but will still be a whopping 120% in 2016 even assuming thatthe full €50bn of privatization measures are implemented.• The debt/GDP ratio of Ireland and Portugal will also comfortably exceed 100% in 2016,despite these new measures, and, despite official denials, markets will conclude that ahaircut cannot be avoided, especially for Portugal.• For each €1bn/week of Greek debt buybacks, we estimate that 10Y Greek spreads toGermany will narrow 100bp• Although sovereign spreads have retraced 2/3rds of their widening since 1 July, much ofthis narrowing has resulted from short covering.• We do not believe that semi-periph. spreads will narrow back to pre-July levels, especiallysince prior bailouts have eventually led to wider spreads once the euphoria has died down.• We thus believe that spreads will widen again as short covering dissipates & reality sinks in