GREuphoria, Interrupted... Or Not


Can't wait to see what they came up with...

EURUSD is limping lower (-20 pips to 1.2800) as the early morning hours tick by in Europe and still Greece is not ceremoniously considered fixed. Reuters, citing official sources, got its hands on the 15-page report prepared for the meeting and it is grim reading indeed - summarized below (via Bloomberg): "The [extensive] package of options will not make it possible to arrive at a debt-to-GDP ratio of close to 120 percent in 2020 without taking recourse to measures that would entail capital losses or budgetary implications for euro area member states or envisage a more comprehensive Debt-buyback entailing the activation of collective action clauses." It would seem the GGB trade may well be the 'no brainer' trade of the year after these new haircuts.


Via Bloomberg:

Current Greek debt level about 170% of GDP


Without debt-reduction measures, Greek debt will fall to

  • 144% of GDP in 2020
  • 133% of GDP in 2022
  • 111% of GDP in 2030

Goal of debt-to-GDP ratio close to 120% in 2020 only possible with “measures that would entail capital losses or budgetary implications for euro area member states,” Reuters cited document


Target of reaching debt sustainability may be postponed to 2022


Reduction of interest rates on bilateral loans to Greece by 70 bp vs currently 150 bp above financing costs would cut debt by 1.4% by 2020; Cut to 25 bp would reduce debt by 5.1% of GDP by 2020


Deferring interest payments by 10Y to 2022 on loans made through EFSF would cut Greek debt by EU43.8b, or 16.9% of GDP


Return of profits made by ECB on Greek bond portfolio, would cut Greece’s debt by 4.6% in 2020


Buying back EU10b worth of Greek bonds from private investors at 50 cents/euro would result in debt falling by 2.4% of GDP by 2020


Combined elements would still fail to reduce the overall debt-to-GDP ratio to 120% by 2020, the level the IMF has deemed as “sustainable”


IMF may withdraw from Greek bailout programs if level can’t be reached