Economics Web Note


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The Greek show is kept on the road for now

 
 
Although the Eurogroup statement did not mention the term OSI, it is clear how Greek debt is expected to become sustainable over time. This will involve ongoing efforts by Greece, reductions in borrowing costs on the Euro area part of the official loans and maturity extensions of the Euro area part of the official loans. Significant steps were agreed at this Eurogroup meeting. More will follow over time.
The key objective of this Eurogroup meeting was to achieve a debt to GDP ratio of 124% of GDP in 2020 and a debt to GDP ratio of something significantly below 110% of GDP in 2022. This was critical in order to keep the IMF on board. In addition to the underlying assumptions on the fiscal adjustment and nominal growth, the Euro area is contributing to this process in the following ways.
First, a reduction of 100bp in the interest rate on the Greek loan facility. Other program countries are not required to participate while they are in programs.
Second, a lowering by 10bp of the guarantee fee costs on EFSF loans, worth €0.6bn.
Third, a commitment by member states to pass on the income on the SMP portfolio. Other program countries are not required to participate while they are in programs.
And fourth, an EFSF loan for debt buybacks.
We incorporate all of these into our analysis to generate a medium term debt profile. On the SMP portfolio, we assume that both the interest payments and the capital gains are passed on to Greece. For the debt buybacks we assume a €10bn EFSF loan to buy back €30bn of market debt. With these assumptions, we achieve a debt to GDP ratio of 122.7% in 2020 and 106% in 2022.
In the table below we have not included the impact of the interest rate deferral on EFSF loans, nor the 15 year maturity extension on EFSF loans. Both of these are about the financing profile, rather than the overall debt burden.
This seems to be enough to keep the IMF on board, although it wants to see the outcome of the debt buybacks. Without the debt buybacks, the Greek debt to GDP ratio would be 133.1% in 2020 and 116.2% in 2022.
This package of measures looks to be enough to keep the show on the road for now. It doesn’t ease the near term fiscal burden for Greece, which continues to be huge. Nor does it mean that further official support will not be needed in the future. Indeed, the Eurogroup explicitly states that further measures and assistance will be forthcoming if necessary. Possibilities mentioned include lower cofinancing in structural funds and/or further interest reductions on official loans. However, the Eurogroup makes it clear that even the benefits outlined above are conditional on program implementation, and that further support will also be conditional.
Next steps include parliamentary approvals and the debt buybacks. The Eurogroup anticipates that the disbursement of further funds will resume from mid December.
 
 
Greek financing in line with situation in late November 2012: with policy change
 
 
 
 
 
$ bn
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Gross borrowing need
60.9
54.1
126.6
18.0
27.2
21.6
3.6
7.5
0.4
4.8
0.2
-0.5
-1.2
Fiscal balance
24.5
19.6
13.5
7.2
5.0
3.2
0.7
0.1
0.0
-0.6
-1.2
-1.9
-2.6
Primary balance
11.3
4.9
3.0
0.0
-2.8
-5.8
-9.0
-9.4
-9.3
-9.7
-10.1
-10.5
-11.0
Interest expense
13.2
14.7
10.5
7.2
7.8
9.0
9.7
9.5
9.3
9.1
8.9
8.7
8.4
Amortization market short term
8.9
9.2
11.8
3.5
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
Amortization market medium term
19.6
28.1
13.5
11.9
18.6
9.1
5.7
6.0
2.0
6.0
1.0
1.0
1.0
Amortization official loans
0.0
0.0
0.0
1.7
7.4
8.6
3.2
1.0
1.0
2.0
3.0
3.0
3.0
Other borrowing needs
7.9
-2.8
87.8
-6.3
-4.2
0.3
-6.4
0.0
-3.0
-3.0
-3.0
-3.0
-3.0
Gross financing sources
60.9
54.1
126.6
18.0
27.2
21.6
3.6
7.5
0.4
4.8
0.2
-0.5
-1.2
Privatisation receipts
0.0
1.0
0.7
1.7
2.4
2.2
2.4
4.0
4.0
4.0
4.0
4.0
4.0
Other financing sources
0.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Market access short term
9.2
11.8
3.5
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
Market access medium term
19.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Official loans
31.5
41.3
122.4
25.9
24.4
19.0
0.8
3.1
-4.0
0.4
-4.2
-4.9
-5.6
Stock of outstanding liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
328.5
355.6
344.6
323.8
322.2
323.5
315.4
311.5
304.6
297.0
288.8
279.9
270.3
Market debt
297.0
282.8
149.4
104.4
85.8
76.7
71.0
65.0
63.0
57.0
56.0
55.0
54.0
Official loans
31.5
72.8
195.2
219.4
236.4
246.8
244.4
246.5
241.6
240.0
232.8
224.9
216.3
Euro area official loans
21.1
52.1
168.0
187.3
205.1
217.5
216.7
220.8
217.9
218.3
213.1
207.2
200.6
IMF official loans
10.4
20.7
27.2
32.1
31.3
29.3
27.7
25.7
23.7
21.7
19.7
17.7
15.7
Nominal GDP
222.2
208.5
195.0
184.4
184.8
192.0
199.7
208.0
216.7
226.1
235.3
245.0
255.0
Nominal GDP %oya
-3.8
-6.2
-6.5
-5.4
0.2
3.9
4.0
4.2
4.2
4.3
4.1
4.1
4.1
Deficit (% of GDP)
11.0
9.4
6.9
3.9
2.7
1.7
0.4
0.0
0.0
-0.3
-0.5
-0.8
-1.0
Primary (% of GDP)
5.1
2.4
1.5
0.0
-1.5
-3.0
-4.5
-4.5
-4.3
-4.3
-4.3
-4.3
-4.3
Gross debt (% of GDP)
147.8
170.6
176.7
175.6
174.4
168.5
158.0
149.8
140.5
131.4
122.7
114.3
106.0
Implicit average interest rate %
4.4
4.5
3.0
2.1
2.4
2.8
3.0
3.0
3.0
3.0
3.0
3.0
3.0


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