Tuesday, February 11, 2014

11/2/2014: Greek Bailout 3.0 or a Fix 1.4: Ifo Assessment

In light of Bloomberg report on new package of supports for Greece being planned (http://www.bloomberg.com/news/2014-02-05/eu-said-to-weigh-extending-greek-loans-to-50-years.html), German institute Ifo issued a neat summary note.

The core supports being discussed in the EU are: extending term of the loans to 50 years, and lowering the interest cost of loans by 50bps.

Here's a summary via Ifo:

  • As of December 2013 "Greece had received 213.4 billion euros from two bailout packages."
  • First package was May 2010 Greek Loan Facility (GLF) comprising a loan of ca 73 billion euros, disbursed in December 2011. "Of this sum 52.9 billion euros was loaned in the form of bilateral credit between Greece and the other countries of the Eurozone (excluding Slovakia, Estonia and Latvia), while a further 20.3 billion euros was provided by the International Monetary Fund (IMF)."
  • Second package was extended in February 2012 in the form of credit from the European Financial Stability Facility (EFSF). "By December 2013 133.6 billion euros of this second package had been paid out. Moreover, the IMF also increased its financial assistance to Greece by 6.6 billion euros during this period."

In addition, Greece already restructured 52.9 billion euro of the GLF. Original loans were issued for 5 years term at an interest rate equivalent to the 3-month Euribor plus an interest rate margin of 3 percentage points for the first three years and 4 percentage points for the remaining years.

  • "The term of all loans was subsequently extended to 7.5 years in June 2011 and the interest rate margin was reduced by 1 percentage point." 
  • Subsequently, in February 2012 "the term was extended to 15 years and the margin was reduced to 1.5 percentage points for all further interest payments". 
  • In November 2012 the GLF lenders "doubled the term of the loans to 30 years and reduced the interest rate margin to 0.5 percentage points. 
So in effect, Greece had: 2 Bailouts and 3 adjustments to-date.

By Ifo estimates, the above revisions reduced real debt under the GLF by 12 billion euros.
"The envisaged further relaxation of credit conditions for the 52.9 billion euros of the Greek Loan Facility - with an extension of the term to 50 years and a reduction of the margin to 0 percentage points would entail further losses of around 9 billion euros for European creditors." 

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