Tuesday, 27 November 2012

Mike Lenhoff: An odyssey ends

Protests in Greece earlier this year
Finally, a package of measures has been agreed that will help achieve debt sustainability for Greece, lowering initially the debt to GDP ratio to 124 percent by 2020 and to 110 percent by 2022. The latter will require further steps beyond those agreed for the former but the Eurogroup, the IMF and the ECB have pledged to provide such support. It is not clear whether this will involve some write-off of loans from about 2016, when Greece is required to deliver a primary budget surplus.

Greece will be extended loans of up to 43.7 billion euros in steps as it meets required conditions. The first instalment of 34.4 billion euros is to be released on 13 December to assist in bank recapitalisations and government payments for wages, pensions and other expenditures.

The following is part of the package of measures that has been agreed to help Greece achieve debt sustainability:
  • Interest rates on existing loans are to be cut by 100 basis points, their maturity extended by 15 years and a 10-year interest payment deferral is to be granted.
  •  Profits accruing on the purchase of Greek bonds by the ECB at the time of its Securities Market Programme are to be given to Greece to help repurchase debt. 
  • Finance is to be made available by the Eurogroup of finance ministers to offer private investors 35 cents in the euro for their Greek bonds.
All of this brings to an end a saga that has put Greece under enormous strain. But bringing to an end the odyssey for Greece also demonstrates the resolve to avoid dismemberment of the eurozone. Another test has been overcome that should, as Mario Draghi said, reduce uncertainty and strengthen confidence in the eurozone. Certainly the markets should welcome deal.

Mike Lenhoff
Chief Strategist

No comments:

Post a Comment