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New debt haircut an increasingly likely scenario
By Sotiris Nikas
The prospect of a new haircut on Greek debt, which this time will
affect the bonds and loans held by the official (public) sector, is
increasingly being viewed as a possibility.
The Finance Ministry
has drawn up an analysis of public debt until 2020, which includes the
scenario of a two-year extension to the fiscal adjustment effort beyond
2014.
If the extension is granted by the country’s creditors, the
additional 11.5-billion-euro package of budget savings now demanded by
the troika (as Greece’s international creditors are collectively known),
will be spread over four rather than two years. According to sources,
under this scenario, the recession will be limited to 1.5 percent in
2013 and the country will return to 2 percent growth in 2014. By
contrast, without the beneficial effect of the extension, GDP is seen
contracting by around 3 percent next year and 0.6 percent in 2014. This
year the recession had been projected at 7 percent but first-half data
was encouraging enough to lower this figure to 6 percent.
The
government is well aware that for the two-year extension to be approved
by the creditors, it has to present a credible proposal for the savings
package. This is also considered the “passport” for the disbursement of
the next bailout installment of 31 billion euros. The extension will
improve conditions for the viability of Greek debt but will also create
an additional borrowing requirement of around 25-30 million euros for
the two extra years.
The apparent reluctance of eurozone countries
to fork out any more loans for Greece has recently given rise to
growing calls for a second haircut on Greek debt. This will concern the
bonds held by the European Central Bank and national central banks of
the eurozone, as well as the state loans granted mainly through the
European Stability Mechanism.
Bloomberg yesterday cited German
lawmakers saying that Chancellor Angela Merkel is considering easing
Greece’s bailout terms and looking into how the tough line can be
abandoned. European officials tell Kathimerini that if the two-year
extension is granted, some form of official sector involvement (OSI) in
reducing Greek debt will be inevitable. | 
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