European finance
ministers eased the terms on emergency aid for Greece, declaring after
three years of false starts that Europe has found
the formula for nursing the debt-stricken country back to health.
In the latest bid
to keep the 17-nation euro intact, the ministers cut the rates on bailout
loans, suspended interest payments for a decade, gave Greece more time to repay
and engineered a Greek bond buyback. The country was also cleared to receive a
34.4 billion-euro ($44.7 billion) loan installment in December. Greek bonds
rose.
“This has been a
very difficult deal,” Luxembourg Prime Minister Jean-Claude Juncker told
reporters in Brussels after chairing a 13-hour meeting that ended early today.
“All initiatives decided upon today will bring Greece’s public debt clearly
back on a sustainable path.”
After 240 billion
euros in loan pledges and the biggest write down of privately held debt failed
to turn Greece around, the creditor governments led by Germany proclaimed
the latest fix just as they grappled with swelling financing needs in Cyprus
and a potential aid request by Spain, the fourth-largest euro economy.
‘New Day’
In Athens, Prime Minister
Antonis Samaras went on national television after midnight to celebrate a “new
day” for Europe’s most debt-ridden country. While the financing pact rewarded
the government’s budget cuts and steps to overhaul the economy, Greece will
have to deliver on its commitments to earn each payout.
Gains made by the
euro in the wake of the deal evaporated as investors asked how it will work.
The currency was down 0.2 percent to $1.2950 at 12:50 p.m. in Brussels.
Doubters questioned whether Greece can stomach further economic discipline and
whether the bond buyback will generate enough savings. A shortfall would put
outright debt relief, anathema to northern creditor countries, back on the
agenda.
“This leaves some
uncertainty over the deal,” said Christian Schulz, an economist at
Berenberg Bank in London. Below-target
proceeds from the buyback “could again raise the discussion about an official
sector debt writedown.”
Euro-area finance
ministers sold the accord, blessed by the International Monetary
Fund and European Central Bank, as a milestone
in fighting the debt crisis, much as the first two Greek loan packages were
once touted as solutions.
Bond Holdings
The ECB chipped in
by steering profits from its Greek bond holdings back into the rescue program.
National governments will funnel their share of the profits to Greece’s bailout
account, getting around rules that bar the politically autonomous central bank
from directly lending to the state.
“I very much
welcome the decisions taken by the ministers of finance,” ECB President Mario Draghi said. “They
will certainly reduce the uncertainty and strengthen confidence in Europe and
in Greece.”
The batch of
measures will help pare Greece’s debt from 190 percent of gross domestic
product in 2014 to 124 percent of GDP in 2020, a target set by the IMF as its
condition for continuing to fund a third of the Greek program. One IMF
concession was to raise that target from 120 percent.
“These are solid
commitments that should help Greece to recover enough and regain access to
markets as planned if it takes reform measures to improve its competitiveness,”
IMF Managing Director Christine Lagarde said.
10-Year Bonds
Greek 10-year
bonds advanced, pushing the yield down 19 basis points to 16.32 percent. It
took four crisis meetings to seal the accord, starting with a Nov. 12 decision
to give Greece two extra years, until 2016, to cut its budget deficit -- an
admission that the austerity-first prescription for solving the crisis is
strangling the Greek economy.
Scraping together
the money to fill the resulting financial hole while simultaneously slicing the
debt was a math exercise with political overtones. From the start, Germany, the
dominant country in the crisis management, ruled out
forgiving any of Greece’s publicly held debt.
Debt relief would
be legally questionable, German Finance Minister Wolfgang Schaeuble said. It
would also be politically toxic for Chancellor Angela Merkel, running for a
third term next year on the promise that Greece won’t cost German taxpayers an
additional cent.
Greece’s Economy
With Greece’s economy shrinking
unceasingly since the third quarter of 2008, the IMF had called for further
concessions by the European creditors, doubting that Greece would generate
enough output, tax revenue or asset-sale
receipts to slash the debt.
“We didn’t discuss
a debt cut,” Schaeuble said after the meeting. “It’s out of the question.” Finland and the
Netherlands, also with top credit ratings, balked at debt relief as well,
dismissing warnings by the IMF and some ECB officials that writeoffs might be
the only way out.
“Finland’s
conditions were fulfilled,” Finance Minister Jutta Urpilainen said. “New loans
won’t be granted to Greece.”
Still, lower
bailout rates, the interest-payment suspension and the delay of Greece’s final
repayment deadline until the 2040s will leave taxpayers in the northern
creditor countries with smaller-than-planned profits from lending to Greece.
Parliaments in
Germany, Finland and the Netherlands have insisted on approving the accord,
with Dec. 13 set as the deadline for a formal decision to unlock the next Greek
aid tranche. Final IMF endorsement hinges on Greece completing the bond
buyback.
‘Constructive
Ambiguity’
In addition, the
ministers vowed “further measures and assistance” -- such as another cut in
bailout rates and an increase in European infrastructure subsidies -- once
Greece posts an operating budget surplus. French Finance Minister Pierre Moscovici said the
possible future concessions were couched in “constructive ambiguity,” a hint
that the debt- relief debate may flare back up.
To make the
package palatable for bailout-weary creditor parliaments, unprecedented controls
were built into how Greece spends the money. An account devoted to debt
servicing was strengthened and the payout of future aid installments was keyed
to the Greek government delivering on economic pledges.
“Euro-zone
countries have put their money where their mouth is,” said Carsten Brzeski, an economist at
ING Group NV in Brussels. “However, it is clearly not a carte blanche for
Greece but rather a very tight leash.”
The disbursement
of 9.3 billion euros in the first quarter of 2013, for example, is tied to
experts from the European Union, ECB and IMF certifying that the Greek
government met a January deadline for carrying out a tax reform.
“The big challenge
now is to implement the decisions,” Greek Finance Minister Yannis Stournaras
said. “Greece has huge potential.”
No comments:
Post a Comment