Greek Debt Buyback Falls Short Of Goal, Will Reduce Greek Debt/GDP Target Less Than Required

Tyler Durden's picture

Reuters has disclosed the outcome of the Greek debt buyback, citing a Eurozone official, which while completed at €32 billion, has missed it hard goal by €450 million, and as a result the completely unbelievable Greek 2020 debt/GDP target will be 126.6% instead of 124%. Reuters also reports that the average price on the buyback was 33.5 cents on the euro. As a result of the higher price paid for the buyback, the outcome is that Greek debt/GDP will be reduced by 9.5%, or less than the 11% targeted. Earlier, it was also reported that with virtually all Greek banks having sold out of their Greek bond exposure, all Greek private debt is now in foreign hands. It is unclear how holdouts will be dealt with, and what, if any, rights they will have following the transaction. Finally, as to the 2020 debt/GDP target, one can only hope that the Greek GDP, which is a rather critical component of the debt/GDP calculation, will now rise in a straight diagonal line up and to the right as the Troika expects it to do. Sadly, it won't.

From Reuters:

Greece's debt buyback attracted bids totalling 31.8 billion euros, but the price paid for the bonds will not be sufficient to reduce the debt burden to 124 percent of GDP by 2020, a euro zone official familiar with the auction said.


The source said the average price was 33.5 cents on the euro, slightly above what was expected, meaning that there was a shortfall of about 450 million euros. Senior euro zone finance and treasury officials discussed the results on a conference call earlier on Tuesday.


The official said the operation was sufficient to reduce Greece's debt-to-GDP ratio by 9.5 percentage points, below the originally targeted 11 percent.


That means that debt as a proportion of GDP will only fall to about 126.6 percent by 2020, above the goal agreed with the IMF of 124 percent.

As a reminder, this is what the trajectory of Greek GDP has to be in the next decade for the "target" to be hit:

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EscapeKey's picture

I'm sorry, I really, really struggle to "get" this.

If the plan of action from now on is to expect banks to eat losses for the benefit of Greece, who the hell exactly will buy Greek bonds from now on?

(Except for the ECB of course.)

redpill's picture

I KNOW!  Just ban divisors.  Then rapidly imploding GDP can't negatively impact the debt/GDP calculation because it will be excluded by law.  See?  Easy button.

Dareconomics's picture

Keep moving. Nothing to see here...

The final tally was €31.8bn worth of bonds surrendered at an average price of 33.5¢ on the €. Greek banks anted up the shortfall from Friday, because they need the aid that will be granted after completion of the deal.

Since the Greeks paid more than anticipated for the bonds, a shortfall of 2.6% of GDP has arisen. Not to worry, the debt to GDP ratio is a fiction based on ridiculous Greek economic growth coincidentally commencing right after German elections and continuing for eight years. 

It seems the troika is counting on Greece turning into the Hellenic Tiger in the near future. If you cannot lower debt, than merely raise the denominator, GDP. Merkel believes this deal will get her smoothly through elections. If GDP, employment and tax receipts continue their free fall, a €1bn funding gap per month will have to be covered by the autumn:

zorba THE GREEK's picture

And how is this not a default?

Cursive's picture

@zorba THE GREEK

First rule of central banker fight club:  You do not talk about default.

GolfHatesMe's picture

This is not the default you are looking for.....Greek Jedi mind trick

Orly's picture

And the Euro absolutely plunges on the news!



<scratches head>  OKay.


Cursive's picture


I thought 2009 was surreal, then came 2010.  I didn't think the farce could make it through 2011, then came 2012.  It's beyond surreal.  There is no word to describe it.

Orly's picture

I know it.  I am a technical chartist trader but I also pay attention to fundamentals.  Once the Funny Mentals went out the window, I traded purely on charts.

Now that that's out the window, I am trading on pure psychology, thinking, "What do they want to do and when are they going to do it?"

It's really no way to trade but it is sure fascinating.  It'll make your head spin but at least I am adding a new tool to my trading arsenal: Bankster Psychology.  It'll be offered at a University near you one day.


SheepDog-One's picture

Right I guess Europe will ride the euphoric full-retard parade float of 'We got da Nobel Peace Prize' thru the rest of the week at least!

GolfHatesMe's picture

I think peace is spelled POS

SheepDog-One's picture

No problem...they'll just move the 'Greece will be fixed by' goalposts back to 2050 now....all is well.

youngman's picture

Close enough.....go

I think the Greeks should just triple prices today...and voila...GDP jumps bigtime...see how easy it is's picture

The Greek recovery is sponsored in part by Nike....

Orly's picture


asteroids's picture

That graph is ludicrous. Greece has fallen into a black hole. There's no way out. This deal just makes things worse since most of the debt is now held outside the country.

CrashisOptimistic's picture

Three weeks ago the absolute highest number the IMF would accept was 120%.  Then after the usual 10 hr mtg they agreed to 124%.

This number is about 127%, and with absurd growth projections (and btw, people, just how in the HELL do you get anywhere near those growth projections while cutting spending and raising taxes -- that's DESTIMULATIVE.

The IMF simply HAS to see that this is bullshit.  They won't.  It's not about reality.  It's about keeping the wheels turning.

Nandos's picture

Reuters doesn't said so.. 


By the way, GGBs are on fire

igrego's picture

Debt is now to foreign hands. So what do they expect the economy to rise in 2013 in order to negotiate a higher price??? Or that the greek government will pay out the coupons..?! For them not to exchange the bonds they must know smothing $$$

igrego's picture

Errm  the negotiation was settled at 33.5c and the prices now are 38 and going comment

Bazza McKenzie's picture

So the Greek banking system has just realised losses in the order of 50-60B euros.  And it was bust to start with.  So who bails that out?  Won't be a lot left for Rajoy at the EFSF/ESM when he gets around to asking for Spain's bailout.