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FXstreet.com (Barcelona) - Jonathan Loynes, Chief European Economist at Capital Economics notes that European politicians have found a little bit more money down the back of the sofa to buy another sticking plaster for Greece but he highlights that the relatively easy options are running out fast.

At the third attempt, euro-zone finance ministers finally agreed last night on a deal to allow the release of the next ¬31.5bn tranche of Greece's second bail-out programme. The formula involves three key elements, all of which were widely mooted beforehand; interest rates, profit redistribution and funding. Together, these measures are reportedly expected to bring the ratio of Greek debt to GDP down from current levels of around 190% to 124% by 2020, a touch above the 120% level targeted back in March.

Loynes pays especial notice to the emergence of fixed fiscal transfers to Greece which will now occur as a consequence of artificially low interest rates. He notes that this might be seen as another small step towards the full fiscal union many believe is required to ensure the long-term survival of the single currency union.

Regardless, Loynes warns against over optimism that the three year Greek tragedy is finally drawing to a close. Firstly, there are still major uncertainties over how the buyback part of the deal will be implemented. Secondly, nations like Spain and Italy, who are potentially at risk in the future themselves will be taking losses and finally, and most importantly, everything hinges on a near miraculous recovery in the Greek economy.

He finishes by noting that, "Overall, then, the latest Greek rescue deal will buy the country a bit more time. But unless the economy stages a miraculous recovery, the rest of the euro-zone will soon be forced to make much more difficult decisions over just how far it is prepared to go to keep Greece inside the euro."
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