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The new tranche pays the obligations to hedge funds

20 June 2013 / 22:06:23  GRReporter
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The restructuring of Greece’s debt was completed over a year ago but the country is still experiencing difficulties with its obligations.

In less than a month, Greece must pay 1.3 billion euro for the bonds that the PSI process (Public Sector Involvement) did not haircut last year and which are owned by banks and investment funds that last year did not rise to the bait that Greece would default. These financial institutions have not adopted the government's proposal to write off 53.5% of the country's obligations to enable Greece to withstand the pressure of the crisis.

Actually, due to the "voluntary" involvement of the majority of private investors, these financial institutions have won the bet and now they will collect 100% of the value of the bonds instead of 46.5% after 10 or 20 years.

The maturity of bond issue ISIN XS0372384064 will be on 25 June this year. It is worth 1.13 billion dollars or 790 million euro which will go into the treasury of Deutsche Bank as reported by Naftemporiki. Another package of bonds (CH0021839524) worth 650 million Swiss francs or 540 million euro must be paid on 5 July.

The amount will be paid from the next tranche of financial aid to Greece which is worth 3.3 billion euro. This makes it clear, now more than ever, that the support to Greece comes out of one pocket of the strongest countries in Europe and enters the other one.

This actually confirms the words of Jean-Claude Juncker, Prime Minister of Luxembourg and former chairman of the Eurogroup, that nobody in the north has lost from the Greek crisis. To the contrary, profits have been capitalized in fact. This, on the other hand, is the price the country has paid to gain time to consolidate its budget and balance its costs.

According to published information, the total amount of the bonds held by hedge funds that have not participated in the restructuring of the debt is 6.4 billion euro or 3.5% of Greece’s GDP.

The total amount of the bonds held by hedge funds that did not participate in the restructuring of the debt is 6.4 billion euro or 3.5% of Greece’s GDP. The first bonds that had remained intact from the restructuring had been paid in May 2012 when Greece had repaid the investors 435 million euro, followed by maturities amounting to 440 million euro in September and December last year. In April this year, the state paid for a debt of 430 million euro and the payment of another 1.3 billion euro is now pending. The rest of the 3.8 billion euro of the bonds that have not been involved in the debt restructuring are broken down into smaller parts until 2057.

In the meantime, the country must continue to strictly fulfil its obligations under the Memorandum of financial assistance in order for it to be able to receive assistance from the European system and the International Monetary Fund.

The costs of the healthcare system which exceed the set amount by about 2.5 billion euro are posing serious problems to the implementation of the recovery programme. The impasse facing the privatizations is also disturbing the revenue side of the budget.

The difficulties in the consolidation of the budget had made the representatives of the supervisory Troika of the International Monetary Fund, the European Central Bank and the European Commission leave Athens this week without being able to report on the state of the economy. They have given the Greek government extra time to establish the sources from which it can fill the gaps in order to continue to receive the support funding. It is expected that the supervisors will return to Athens at the end of next week to check the progress of the programme and to complete their report for the summer.

It seems that the hopes of reducing the VAT in the restaurant business will not materialize. To the contrary, the international lenders from Europe and the International Monetary Fund insist on increasing the VAT on the islands in order for the government to fill the gaps in the budget if it finds it difficult to look for other methods to offset the losses.

The social security system will also take on another burden to cover the deficit of the healthcare funds. According to analysts, it is not excluded that a new reduction of pensions and health insurance costs will take effect from September onwards. It is not yet clear whether the general public will accept this. To avoid unpleasant surprises in 2014, the governments should draw up a strict plan for the taxation of real estate, which brings significant revenue to the budget.

The closure of the national broadcaster ERT has put back on the agenda the issue of the restructuring of the public administration and its branches. By September, the government should have assessed the quality of the activities of 450 thousand civil servants in order to be able to remove 12.5 thousand people from the public administration who do not meet the relevant criteria. The ultimate goal of the public sector restructuring is to reduce the employees of the administration by 180 thousand by 2016.

While the international lenders and the coalition government of Antonis Samaras are looking for ways to consolidate the country's finances, the reshuffles in the banking sector continue. Piraeus Bank has officially announced the purchase of Millenium Bank which was a subsidiary of the Portuguese bank BCP. Prior to the completion of the acquisition, BCP had recapitalised Millennium Bank with 274 million euro. With the 139 million euro invested by BCP in Millennium Bank in December last year, the recapitalization amounted to 413 million euro.

Tags: EconomyBanksCrisisRecapitalization
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