European Politico-economics QA Mega-thread - Page 131

On June 29 2015 04:48 silynxer wrote:

Yes and it is absolutely impossible to find a workaround for another couple of days... But ok I should not call it a hard-line anymore, perhaps stubborn is a better term. Btw you may correct me if I am wrong but isn't a country that cannot pay back IMF loans usually given a grace period? I really don't know this but something comes to mind.

Well I usually don't post and now I remember why. It's just stressing me out too much so sorry to all I'll vanish again. I hope for the best for Greece. Well actually I hope for the best for the best of the EU as well, I like it as a concept but the outlook is rather dire now.

Now don't get me wrong, i'm all for Greece leaving eurozone.

Greece, which may default on an International Monetary Fund debt repayment due on Tuesday after talks with creditors broke down, owes its official lenders 242.8 billion euros ($271 billion), according to a Reuters calculation based on official data, with Germany by far the largest creditor.

That figure includes loans made under two bailouts from European governments and the IMF since 2010 -- worth a nominal 220 billion euros so far, of which some has been repaid -- as well as Greek government bonds held by the European Central Bank and national central banks in the euro zone.

Private investors hold 38.7 billion euros of Greek government bonds following a major write-down and debt swap in 2012 that reduced the Greek debt stock by 107 billion euros and the value of private holdings by an estimated 75 percent.

The Greek government has also issued 15 billion euros in short-term Treasury bills, mostly to Greek banks.

Here is a breakdown of the country's foreign debt stock:

IMF - Greece was promised a total of 48.1 billion euros by the IMF, of which 16.3 billion was still to come by March 2016 if Athens successfully completed the second economic adjustment program. It had serviced and repaid loans on time up to this month, when it used an obscure IMF provision to bundle together four payments totaling 1.6 billion euros for payment by the end of June. The older IMF loans carry an interest rate of 3.5 percent, higher than the euro zone rescue fund charges.

ECB - The ECB owns roughly 18 billion euros of Greek bonds, which would probably be worth a fraction of their face value should the country leave the euro zone, with 6.7 billion euros maturing in July and August.

Beyond a default on Greece's national debt, any exit of Greece from the euro zone would lumber the European Central Bank with a huge bill for lost credit. ECB President Mario Draghi recently said that Greek banks had tapped 118 billion euros of central bank liquidity. That includes 89 billion in what is known as Emergency Liquidity Assistance (ELA). That remains the responsibility of the country's central bank but only if Greece stays in the euro. Were it to leave, the bill would rebound on other euro countries, including Germany.

In addition about 45 billion euros of banknotes in Greece represents another liability, being a claim that the wider Eurosystem of central banks would be obliged to honor.

THE EURO ZONE - Euro zone governments gave Greece 52.9 billion euros in bilateral loans under the first bailout agreed in 2010, known as the Greek Loan Facility. Under the second bailout agreed in 2012 Athens has so far received 141.8 billion euros from the euro zone's financial rescue fund. It had been due a further 1.8 billion euros by June 30 if it met conditions but barring major surprises that is off the table.

Of the biggest euro zone members, Germany's exposure for the two bailouts totals 57.23 billion euros, France's is 42.98 billion, Italy's is 37.76 billion and Spain's 25.1 billion. That is in addition to their contributions to the IMF loans, commensurate with their respective quotas in the global lender.

Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

Greece has asked for further debt relief from the Europeans, a move supported by the IMF. But euro zone governments have said they would only discuss that if Athens further tightens its budget.

On June 29 2015 05:24 Gorsameth wrote:

I doubt the US cares much about a crisis in the Eurozone.

Tsipras Russian connection and the chance he will sell Greece to Russia is a much bigger concern for them.

On June 29 2015 05:27 Nyxisto wrote:
I don't know how much crisis potential there is. Greeks total debt amounts to about 2% of the Eurozone GDP and the banks have been bailed out after all. I guess a Grexit would turn into a political crisis rather than an economical one.

Tsipras: "The Greek people voted against austerity"
The rest: "Very well. Now how are you going to fund that? Because we sure as hell are not going to give you any more money, not before you've fulfilled your end of the bargain."

On June 29 2015 05:31 Gorsameth wrote:

Indeed, that is why the Eurogroup cannot compromise to much on Greece. If they do everyone else will come running for the same.

On June 29 2015 05:40 Faust852 wrote:
I don't think Italy, Spain or Portugal would decide to leave the EU if they see Greece crumble after leaving like they certainly will.

On June 29 2015 05:43 WhiteDog wrote:

Not necessarily leaving, but it could create trouble for them (if Greece leaving the euro create an increase in interests rates for exemple).

Greek debt will miss debt targets set out by creditors in 2012 but an analysis prepared for euro zone finance ministers shows its debt burden is still sustainable without writing off principal -- if Greece gets another three-year bailout.

The analysis, commissioned by the EU creditor governments to help their financing-for-reforms negotiations with Athens, concludes that even in the worst scenario for the Greek economy, the lenders would not have to write off any loans.

Debt relief has been a repeated request from the leftist government in Athens which wants to ease back on austerity.

Under a 2012 bailout agreement, Greece was to reach a debt-to-GDP ratio of 124 percent in 2020 and in 2022 a debt-to-GDP ratio substantially lower than 110 percent, down from 175 percent now.

"It is clear that the policy slippages and uncertainties of the last months have made the achievement of the 2012 targets impossible under any scenario," the analysis, seen by Reuters, said.

"The main factors behind the deterioration of the

Debt Sustainability Analysis are the worsening of economic growth, the revised primary balance path, the lower

privatization revenues and possible additional financial needs for the banking sector."

Under the revised forecast and the most optimistic scenario that Athens implements all reforms, Greek is debt to fall to 124 percent only in 2022 from 172.8 pct in 2015.

If it implements the reforms only partially, Greek debt will fall only to 135 percent in 2022 from 174.3 pct in 2015.

In the worst case, which the International Monetary Fund sees as its "baseline", which means most likely, Greek debt would fall only to 142.2 percent in 2022 from 176.7 percent in 2015.

"All scenarios assume a new 3-year program with concessional financing," the analysis said.

The analysis stresses however, that focusing on the debt-to-GDP ratio does not give an accurate picture of debt sustainability and that this is better reflected by gross financing needs of a country.

Measured like this, Greece has no sustainability problem in any scenario, but would require help to improve the sustainability, via for example an extension of maturities, under the third, least favorable option.

"This gross financing need metric points to no sustainability issues under the first two scenarios," the document said.

"The gross financing needs remain well below 15 percent threshold, a threshold mentioned in IMF guidance for

this criterion. Under this scenario, significant reprofiling of the stock of debt and concessional lending terms would improve sustainability," it said.

"Reprofiling of payment flows does not imply nominal

haircut or budgetary costs for creditors. This would also entail further NPV gains for Greece, and strengthen the sustainability of the Greek public debt in the long-run."