Greek bailout III: Under extreme time pressure - Commerzbank


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FXStreet (Bali) - Christoph Weil, economist at Commerzbank, notes that negotiations set to start this week on a third rescue programme to Greece will not be easy and will be under extreme time pressure.

Key Quotes

"Negotiations set to start this week on a third rescue programme will not be easy. The EU Commission, the International Monetary Fund (IMF) and the ECB estimate that Greece will need between €82 bn and €86 bn up to the end of 2018. These funds will probably mainly be covered by loans from the European Rescue Fund, ESM, as it is questionable whether the IMF will increase its loans to Greece. The precondition for IMF involvement would probably be massive debt relief, which the other euro zone countries have rejected so far."

"A bridging loan for Greece must be secured by Monday, as the Greek finance minister then has to repay ECB €3.5 bn for government bonds which fall due. The funds for this will probably come from the European Financial Stability Mechanism (EFSM), which is guaranteed by the EU budget and which has available funds of €13 bn."

"This money would just about cover Greece’s financial requirements up to the end of August. Consequently, negotiations on an ESM programme are under extreme time pressure. The conditions for further financial aid are roughly outlined in the statement by euro zone countries."

"But agreement on the details should prove difficult; the Greek government, which does not believe in the success of the programme, will do its utmost to agree as few concrete measures as possible. It will probably show most resistance to streamlining and modernising the public sector and to further privatisation, especially as it is already evident that the target privatisation volume of €50bn has been set much too high."

"Moreover, a dispute is brewing between euro zone countries and the IMF about Greece’s debt sustainability. This has deteriorated markedly since the last review in May 2014 according to the IMF. Amid the prospect of less ambitious deficit targets in the coming years and economic growth short of expectations, the public debt ratio is falling at a much slower pace than previously assumed."

"The IMF therefore wants euro zone countries to significantly extend the term of the rescue loans and further lower interest rates. However, debt sustainability can only be restored if everything goes according to plan and the conditions are not softened further. Otherwise, the IMF considers a haircut unavoidable – which euro countries do not want. Without debt sustainability guarantees, the IMF is not actually permitted under its statutes to transfer any more money to Greece."
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