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Bloomberg: Greece is expecting to face a restructuring of the foreign debt

04 December 2010 / 11:12:13  GRReporter
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Greece will have to restructure its debt, even after extending the repayment term for the amounts under the Memorandum for financial aid reported Bloomberg. The paper refers to John Stopford, who is the manager of Investec Asset Management in London and is engaged in asset management amounted to 65 billion euros. "It would be a mistake if you don’t take into account the possibility for restructuring of the loan" the specialist was explicit and stated that Greece has a structural problem and believes that the renegotiation of the conditions under the debt will reduce the risk of new, more serious disturbances in the future.

The levels of the spread-indexes of Greek government bonds in respect to the German ones are still at high levels similar to those from the spring of 2010, before Greece signed the Memorandum with the International Monetary Fund and the eurozone countries for 110 billion euros. With the inclusion of Ireland in the mechanism for financial aid, Greece won extending of the period for repayment of the debt under the Memorandum and the first maturity date will be as late as 2013. "At the end of the game (contracts for financial assistance-BA.) Greece and Ireland will end up with extremely high levels of their external debts." Their economies will be exhausted by strict fiscal consolidation measures, and their liabilities to foreign creditors will be hanging upon the weaker European countries as a millstone.

"Extending the repayment period will certainly have a positive effect for Greece, but we still can not exclude the possibility of debt restructuring, because the problem of budget deficit is real," said Mohit Kumar fyom Deutsche Bank AG. This year, the desperate move of the government, which imposed a tax amnesty for the period 2001-2009 year, filled the "black hole" in the revenue account of the budget. The country must comply with a serious financial discipline and still it has a few very difficult years ahead of it. The measures to be taken must have long term, not an extraordinary nature, so that reducing the deficit to be stable. According to the program of fiscal consolidation before the amnesty the government lacked about five billion euros in order to fulfill the objectives set out in the rehabilitation program - by the end of December 2010 the deficit should be reduced from 15.4 percent of GDP in 2009 to 9 4% of GDP.

Political support for Greece depends also on its ability to achieve the objectives set out in the fiscal consolidation program, only that three years are a long period and many things can change in the macroeconomic environment. According to Spencer Jones from Newstate Partners LLP, who specialize in matters of foreign debts and their clients are Russia, Congo and Antigua, if a restructuring of the public debt is to be made, it is important to be done as fast as possible. The economist believes that as more funds flow into the country from the financial assistance mechanism, the more severe potential losses will be if debt restructuring is needed. "My opinion is that Greece can avoid it restructuring of foreign debt, but this assessment is apparently not shared by many others on the international markets."

Standard & Poor's warned it may decrease the credit rating of Greece BB +. This time the reason for the new downgrade is not internal economic situation of the country but depends on the decision about how the rehabilitation of the finances of the troubled countries of the European mechanism for stability will affectnthe holders of government bonds in the private sector. Greece will be supervised by CreditWatch in the next three months, and the expectations are negative. We believe that debt restructuring in the private sector will be the result of political rather than objective economic reasons, said the statement of Standard & Poor's. The credit rating agency expects in the future the eurozone politicians to make uncoordinated and even contradictory statements which under the conditions of a new crisis could potentially lead to market distortion and put in risk the free financing for certain countries.

At the same time it became clear that the head of the International Monetary Fund Dominique Strauss-Kahn will visit Athens next week, and in his program are planned meetings with the government and representatives of the Greek official institutions. Initial information indicates that the IMF is discussing the issue about extending the deadline for repayment of the financial aid, following the example of the eurozone countries. Agreements imposed in the memorandum of financial aid require each installment to Greece to have two-thirds funding from the eurozone countries and one third by the IMF.

Tags: Economy Markets Bloomberg Greece Crisis Dominic Stros-Kan Oli Ren
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