Greece’s creditor haircut is as bad as mine
As far as I understand it, the plan is to reduce Greece’s debt to GDP to 120 percent by the year 2020. That is vision. Hah-hah! Private sector creditors are going to receive a 53.5 percent write down on their holdings of Athens debt, which is about as bad as the haircut that I got this weekend.
Awful I tell you, mine, not these guys, they were expecting that. 100 billion Euros written off.
The ECB which also made profits on its purchases of Greek bonds, will hand the profits back to Greece, as part of the aid package. Plus the earlier interest rate agreed upon in the first loan, has been lowered. Remember, these are all loans. Greece owes the money. Do not forget that. It is an asset in someone else’s hands. So what happens now? Bondholders are going to swap existing Greek debt over the next few weeks (8 March is the starting day of a three week process) in return for half of what they paid at face value. Sis. But you cannot say that they have not been expecting that. So that is the closest next thing to watch.
And how will the process be managed?
”The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and ensure Greece’s banking system remains stable: 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks. A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in. Next to nothing will go directly to help the Greek economy.”
And now the troika will sit on Athens. And keep a closer eye on the funds and what they are used for. And monitor the progress, because the debt relief to each and every citizen is around 10 thousand Euros. The tricky part is that there are elections coming up. And it is widely anticipated that there will be a change of guard in Greece’s ruling party. Phew, that presents a whole host of new problems for the fellow Europeans. The problems immediately for the people of Greece is the pain of earning a whole lot less. Having to be strong armed by their European neighbours. But I guess you could say that this is the price of having perhaps fudged stuff at the beginning of the entry into the union, but that responsibility to check out was also on the other existing members. That did not happen.
Let us fast forward just a few years. The collective spirit of the nation to be compliant (after a period of extreme stress, like we see now) might actually mean that revenue collection is higher in the coming year. Lower wages and high youth (and general) unemployment means that for the time being the going is tough. It won’t always be the case. The sceptics out there suggest that it is just a matter of time before Greece needs more. Others are suggesting now that Greece has been dealt with, Portugal, Spain and Italy still have problems. Which they are working on. As Paul points out, Iceland’s credit rating is no longer junk -> Iceland Raised to Investment Grade at Fitch on Recovery. Quite.
Sasha Naryshkine at Vestact