Greek Loans May Get 30-50 Years Payback

Despite a primary surplus and a tepid return to the bond markets, Greece’s debt is still so unsustainable that European Union officials are reportedly preparing to extend repayments on 240 billion euros in two bailouts as much as 30 to 50 years and lowering interest rates.
That would be instead of providing debt relief in the form of writing off some, or much of what the country owes, the financial news agency Reuters reported.
While the government is gloating that last week’s oversubscribed floating of a five-year 3 billion euro bond was proof of a coming recovery and full return to the markets, there are fears that was “artificially engineered,” Reuters said.
The debt is still at 175 percent of Gross Domestic Product (GDP), there are few signs of growth or more Foreign Direct Investment, unemployment is at a record high, there is deep poverty and austerity measures have put a crushing burden on workers, pensioners and the poor.
Greece owes 240 billion euros ($330.7 billion) to the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) but wants debt relief, preferably in a so-called “haircut” in which it would stiff the public investors the same way as was done to public investors, who lost 75 percent of their money.
But that would force the taxpayers in the other 17 Eurozone countries to pay the bill for generations of wild overspending by Greek governments and likely meet fierce resistance.
German Chancellor Angela Merkel, whose country is putting up much of the money and profiting handsomely from it, demanded big pay cuts, tax hikes, slashed pensions and worker firings in return and has ruled out a debt cut.
But since prospective lenders are more concerned with how long a country has to repay its obligations than how much it owes, the so-called “extend and pretend” idea is on the table as the most politically palatable choice, it was reported.
The bond sale went so well for Greece because investors are expecting debt relief in one form or another that would insulate them from being burned again.
“That has been quite substantially priced in, and the market is also expecting Greece to be quickly upgraded by the credit rating agencies,” Alessandro Giansanti, senior rate strategist at ING bank in Amsterdam, told Reuters.
“In a second stage, the market is also expecting a reduction in principal on official debt, and no private sector involvement (write-down) in the coming years,” he said.
Elena Daly, principal at EM Consult, a Paris-based sovereign debt consultancy told the news agency: “Stretching out the official sector loans and reducing their interest rates opens a window for new private sector lending without fear of competing with existing official sector creditors when the time comes for repayment.”
Most of Greece’s rescue packages run out this year although some monies will still be coming from the IMF for two more years.
The EU officials were said to also be keen to back the bond and Prime Minister Antonis Samaras, the New Democracy Conservative leader who had done their bidding and pushed reforms, but who faces a serious challenge in next month’s critical elections for Greek municipalities and the European Parliament.
The major opposition Coalition of the Radical Left (SYRIZA) leader Alexis Tsipras, whose party has been leading in polls, said he believes the ruling parties of New Democracy and its partner the PASOK Socialists will be repudiated and that it will force early national elections which he believes he’ll win.
Tspiras said he would seek to revise the terms of the memoranda with the Troika or renege on the loans outright, which critics said could push Greece out or the Eurozone, undermine the financial bloc, and leave the country broke.
The IMF’s envoy to Athens, Poul Thomsen, told ProtoThema in an interview that while the bond was a good sign, Greece still doesn’t have enough money to function or the capability to fully finance itself yet.
“This is an important milestone. One of the fundamental objectives was to bring Greece back to the markets, to restore market access,” he said.
But, he added, there could be a need for another, smaller bailout, although that has been rejected out of hand by Samaras. “I wouldn’t talk about a new program, we have a program, but that program … will need more financing,” Thomsen said.
“It runs to the early part of 2016 and in our view it is not fully financed. We’re not looking at a big amount compared to the last one,” he said.
Thomsen said it was also important for Greece to proceed with giving banks more money so that they can return to the markets and to help offset bad loans as high as 42 percent because customers hit by austerity can’t afford to repay loans, credit cards and mortgages.
That includes the ruling parties of New Democracy and PASOK who owe banks 250 million euros ($345.6 billion) but aren’t paying, although insisting that Greeks who’ve lost nearly half their disposable income must pay the banks what they owe.
With a nod to the devastating effects of austerity, he said “youth unemployment is at a totally unacceptable level,” adding: “The program is all about creating prospects for growth, prospects for job creation and higher incomes.”
“I will say to young people that implementation of the program is what brings about hope for the future,” although that’s too late for many who have already fled to other countries seeking a job and a better life.