The crisis with endless rescues. It seems like every Sunday night Greece is being “rescued” these days. Meanwhile, the debt situation deteriorates and their economy spirals into the toilet. Yet, we keep hearing about how “progress” is being made in Europe. The WSJ has a brief guide on the latest “rescue”:
- Private-sector participation: Debt exchange calls for private investors to waive 53.5% of their principal under a massive debt swap that will cut Greece’s outstanding debt stock by EUR107 billion. That goes beyond a 50% haircut agreed at a summit in October.
- Greek Debt: The deeper private-sector haircut will help bring Greece’s debt as a proportion of gross domestic product to 120.5% by 2020 from over 164% currently. That appears to satisfy the demands of the International Monetary Fund, which had insisted that the final targeted debt ratio be as close to 120% as possible in order for it to participate in the bailout.
- ECB Holdings: The agreement spares the European Central Bank, as well as national central banks, from taking any losses on their holdings of Greek debt. Instead, the ECB will disperse any profits it makes on the portfolio of bonds it holds under its Securities Markets Program. National central banks in the euro zone will transfer to Greece any profits arising from those Greek bonds they hold as investments.
- Rates: Greece’s official creditors agreed to reduce the interest rate payable on loans disbursed under the first Greek bailout program, approved in 2010, a move that could shave EUR1.4 billion off Greek debt.
- Oversight: Greece had to agree to a permanent representation of official creditors in Athens overseeing a blocked account for receiving aid payments. This account will favor debt servicing and availability will be subject to Greek compliance with budget targets.
- Enough of Greece’s private-sector investors still must agree to the new terms of the restructuring, which requires them to take a deeper writedown on their Greek bonds than previously expected. The key will be how many will be forced into accepting the deal.
- A number of euro-zone parliaments, including Germany’s Bundestag, must agree to free up their share of the public funding for the new Greek bailout.
Yes, “what next”? I’ll tell you what’s next. Rinse, wash and repeat in a few months when everyone realizes that Greece is just as bad off as they ever were….