Greece’s economy has deteriorated so severely in the last three months that international lenders would have to find €252bn in bail-out loans through the end of the decade unless Greek bondholders are forced to accept severe cuts in their debt repayments.
The dire analysis, contained in a “strictly confidential” report by international lenders and obtained by the Financial Times, is more than double the €109bn in European Union and International Monetary Fund aid agreed just three months ago.
Under a more severe test run by economists for the so-called “troika” of lenders – the IMF, European Central Bank and European Commission – Greece’s bail-out needs could balloon to €444bn, the study said.
The report also made clear European leaders are considering “haircuts” on Greek bonds far higher than previously known. The sudy determined that in order to bring a second Greek bail-out back to the €109bn agreed in July, bondholders would have to take a 60 per cent loss on their current holding.
That is significantly more than the 21 per cent haircut agreed in a deal with private investors three months ago. The analysis says that a 50 per cent haircut, increasingly considered the most likely scenario among European policymakers, would put the second Greek bail-out at €114bn, or €5bn more than the July deal.
“Recent developments call for a reassessment,” the report said. “The situation in Greece has taken a turn for the worse.”
The debt analysis report was only distributed to national capitals on Friday afternoon, just hours before finance ministers for the 17 eurozone countries arrived in Brussels for a deliberation over Greece that lasted late into the night.
European officials said the delay was due, in part, because of a disagreement between the IMF and the ECB over whether Greece could meet its debt obligations without significant writedowns. The IMF argued that Greek bondholders needed to take larger hits, while the ECB has repeatedly warned that such defaults could spread market panic.
In a clear reference to that dispute, a footnote said the ECB “does not agree with the inclusion” of the report’s haircut scenarios.
In order to deal with the possible market panic from such large haircuts, eurozone leaders have agreed to increase the firepower of its €440bn rescue fund.
Eurozone leaders had hoped to finalise an agreement on a second Greek bail-out at a highly-anticipated summit on Sunday. But disagreements between France and Germany over how to increase the fund’s wherewithal have forced them to put off a decision until a second summit, which will now be held on Wednesday.
Despite the deteriorating picture painted by the official analysis, eurozone finance ministers approved its €5.8bn portion of the next €8bn tranche of bail-out aid, an agreement that came a day after the Greek parliament yet again passed new austerity measures amidst some of the most violent street protests in over a year.
The deterioration in Greece’s financial situation described in the troika’s debt analysis report is deep and across the board, and Greece is likely to be forced to rely on bail-out loans to finance its operations through at least 2021.
The much-touted Greek privatisation programme, which was expected to bring as much as €66bn in cash to help pay down debt, is now expected to bring in €20bn less, and lenders are now assuming that the Greek government will continue to lag in implementing repeatedly-promised austerity measures.
“In keeping with experience to date under the programme, it is assumed that Greece takes longer to implement structural reforms, and that a longer timeframe is necessary for them to yield macroeconomic dividends,” the report said. “A longer and more severe recession is thus assumed.”
http://www.ft.com/intl/cms/s/0/66bdcbc0-fc11-11e0-b1d8-00144feab49a.html#axzz1bRaDVmU1
The dire analysis, contained in a “strictly confidential” report by international lenders and obtained by the Financial Times, is more than double the €109bn in European Union and International Monetary Fund aid agreed just three months ago.
The report also made clear European leaders are considering “haircuts” on Greek bonds far higher than previously known. The sudy determined that in order to bring a second Greek bail-out back to the €109bn agreed in July, bondholders would have to take a 60 per cent loss on their current holding.
That is significantly more than the 21 per cent haircut agreed in a deal with private investors three months ago. The analysis says that a 50 per cent haircut, increasingly considered the most likely scenario among European policymakers, would put the second Greek bail-out at €114bn, or €5bn more than the July deal.
“Recent developments call for a reassessment,” the report said. “The situation in Greece has taken a turn for the worse.”
The debt analysis report was only distributed to national capitals on Friday afternoon, just hours before finance ministers for the 17 eurozone countries arrived in Brussels for a deliberation over Greece that lasted late into the night.
European officials said the delay was due, in part, because of a disagreement between the IMF and the ECB over whether Greece could meet its debt obligations without significant writedowns. The IMF argued that Greek bondholders needed to take larger hits, while the ECB has repeatedly warned that such defaults could spread market panic.
In a clear reference to that dispute, a footnote said the ECB “does not agree with the inclusion” of the report’s haircut scenarios.
In order to deal with the possible market panic from such large haircuts, eurozone leaders have agreed to increase the firepower of its €440bn rescue fund.
Eurozone leaders had hoped to finalise an agreement on a second Greek bail-out at a highly-anticipated summit on Sunday. But disagreements between France and Germany over how to increase the fund’s wherewithal have forced them to put off a decision until a second summit, which will now be held on Wednesday.
Despite the deteriorating picture painted by the official analysis, eurozone finance ministers approved its €5.8bn portion of the next €8bn tranche of bail-out aid, an agreement that came a day after the Greek parliament yet again passed new austerity measures amidst some of the most violent street protests in over a year.
The deterioration in Greece’s financial situation described in the troika’s debt analysis report is deep and across the board, and Greece is likely to be forced to rely on bail-out loans to finance its operations through at least 2021.
The much-touted Greek privatisation programme, which was expected to bring as much as €66bn in cash to help pay down debt, is now expected to bring in €20bn less, and lenders are now assuming that the Greek government will continue to lag in implementing repeatedly-promised austerity measures.
“In keeping with experience to date under the programme, it is assumed that Greece takes longer to implement structural reforms, and that a longer timeframe is necessary for them to yield macroeconomic dividends,” the report said. “A longer and more severe recession is thus assumed.”
http://www.ft.com/intl/cms/s/0/66bdcbc0-fc11-11e0-b1d8-00144feab49a.html#axzz1bRaDVmU1
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