Τρίτη, 10 Φεβρουαρίου 2015

Greek compromise plan: the key points

Greek compromise plan: the key points

Gary Jenkins, City analyst at LNG Capital, reckons Greece’s creditors could support some parts of its compromise plan, but aren’t likely to agree to a debt swap.
Here’s his view of the key points <as laid out by the Kathimerini newspaper>. It’s quite long, but worth reading ahead of tomorrow’s Eurogroup meeting.
1) 30% of the memorandum be scrapped and replaced with 10 new reforms which Greek officials are to agree with the Organization for Economic Cooperation and Development.
Obviously the devil would be in the detail and it is impossible to comment without that. However it is possible that some new reforms could be agreed upon and some old ones amended, so it is at least a negotiating point.
2) A reduction in Greece’s primary surplus target of 3% of GDP to 1.49%.
To some degree this is linked to (3) below, but considering the economic hardship endured by Greece it is difficult to believe that there would be no movement on this point. It may depend upon exactly what the money would be utilised for of course, but a reduction of this kind is unlikely to be the straw that breaks the Eurozone’s back.
3) A reduction of Greek debt through a swap plan.
This is likely to be some kind of swap where the debt (or a portion of it) becomes linked to economic growth. Here we have a potential sticking point: Whilst I think that the Greek debt burden is too high the fact is that the Eurozone may regard it as ‘sustainable’ because of the duration of the debt and the interest rate. Thus they may think that it is ‘sustainable’ even if they do not think it is ‘repayable.’
Therefore they may not wish to consider and change to the debt load or any material changes to the terms at this stage. They may well agree to a further extension and / or a lowering of the interest rate (either now or at a later date if Greece sticks to the new deal) but they are unlikely to consider a write down at this stage. The idea of linking the debt to GDP may be favoured by many economists but the EZ may believe that the kind of monitoring that would be required would be beyond their relationship with the new government at this stage.
However this is a proposal that the EZ could push back on to demonstrate that they have not just rolled over to all of the Greek governments demands, and that the Greek government could sell to their people as ‘work in progress,’ whilst pointing out all the concessions that they have won.
4) Greece’s “humanitarian crisis” is to be eased using measures set out in the government’s policy program which was unveiled by Prime Minister Alexis Tsipras on Sunday night.
This is linked to the other points and again the devil is in the detail. If the Greek government is allowed to run a lower primary surplus and use that money for ‘humanitarian’ purposes it is difficult to see why the EZ would turn them aside.
5) Greece wants to secure the €1.9bn in profits from the Greek bonds held by the Eurosystem and will seek to issue T-bills, some €8bn above the €15bn limit which Greece has exceeded. Authorities are also keen to raise the threshold for emergency liquidity assistance from the European Central Bank.
I’m not sure about the ‘profits’ as to whether they are realised or mark to market. The T – bills may be an acceptable compromise but I would imagine that the ELA would continue to be very tightly monitored.
6) A further portion of a pending €7.2bn loan tranche could also be drawn if required, essentially reversing the previous insistence by the government that it does not want the money.
The EZ may not want the Greek government to draw down additional funds unless they publically state that they remain in a programme. This is probably more about political face saving for both parties and it would be surprising if some kind of wording could not be drawn up that was acceptable to both parties. However it could all fall down on the point of being in a programme or not.

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