How to get Greece More Aid

German finance minister rules out Greek debt haircut: radio | Reuters.

Greek debt to badly miss target: euro zone official | Reuters.

Most of the Greek’s public debt is held by the ECB, the IMF and other Eurozone countries. Schaeuble ruled out these entities taking a haircut on their holdings.

Greece needs more money, so it is a matter of how to give it more aid rather will it get more aid from the troika. No one wants Greece to fail, but there are political constraints to helping Greece.

The IMF is prohibited from granting loans to countries who have an unsustainable debt burden, and the latest troika tests show just that. More IMF loans are out of the question, too.

There has been talk about buying debt back at reduced prices. The problem with this idea is that it has been out there for quite some time allowing speculators to bid up debt price to front-run the plan. If a real plan is announced, they will buy more raising the closer to par. A debt buyback plan simply will not put a dent in the €30bn more that Greece requires.

Since the obvious ideas have been eliminated by officials or practicality, consider this scenario. Greece issues debt under the auspices of the ESM, which partially guarantees it. This allows Greece to sell €30bn it needs to delay its austerity plan the requested two years.

We will see what happens soon enough.

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2 thoughts on “How to get Greece More Aid

  1. Regarding the debt buy-back proposal: At least Greek banks set the post-PSI bonds fair value based on the CDS auction result (which was close to 21) making the total PSI haircut to a bit over 80%. I assume that other European banks took the same route.

    Any debt buy-back proposal with a higher price (the price that circulated the news was 25) will actually provide a capital relief (as long as the bonds are held in HtM) and will be more than welcome by the banks themselves (since it will probably mean that they ‘ll get short-term ESM securities). Current and future trading bonds trading price will not play a major role, although some banks have decided to place the bonds in the AfS portfolio (Bank of Cyprus for example if I remember correctly).

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