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Greece solvency issues need 'fundamental' solution

ALAN KOHLER, PRESENTER: In the market sentiment in recent weeks has been lurching from one extreme to another, according to news from the debt crisis in Europe and America.

It seems that the Europeans now get their house in order, finally, with France and Germany to accept a bailout Greek.

But the United States, politicians continue to argue about how to reduce the budget deficit of the nation.

And maturity of America is now just days away, with the ceiling of the debt due to being struck on August 2.

For his take, I spoke to Hamish Douglass of Magellan Financial Group on Friday.

ALAN KOHLER: Well Hamish, will be the Greek rescue plan agreed in Brussels this week to avoid a major contagion?

HAMISH DOUGLASS, CEO, Magellen FINANCIAL GROUP: Well, Alan, it is difficult to answer definitively. This was a very fast event.

Ads overnight in terms of a new bailout package for Greece, in our opinion was a major step forward. It is the first package is really designed to address a solvency problem of Greece. We believe that the package has a number of very encouraging developments in it.The package to extend the loan term loans granted by the EU and the IMF from eight to 15 years and reduce the interest rate sort-and-three quarter of a percent is what they offer, will have a major advantage for Greece in terms of lower net present value of debt they have the EU and the IMF, but other parts of the package are also appear encouraging. Banks could be the exchange of loans that we currently understand it, and it is still under development, is good for 30 years or obligation to 8 years at 4 percent interest rate.This would have the effect of writing or relieve Greece, a burden of perhaps 20 percent of the value of bonds held by the financial system.

Is it enough to properly address the issue of solvency in Greece? Could we be back in 12 months still not fully solve this problem? Look, I think there is more water to pass under the bridge by Alan.

ALAN KOHLER: But the solution was to confront all along has not it? I mean the European financial stability was always going to be the answer, and deadlines have been extended, and interest rates were cut. Why did it take so long?