Greek bond buyback successful; 'Grexit' issue dead?
Eurozone finance ministers and the IMF welcomed the results of a buyback of debt by Greece and released more aid for the country
The Eurogroup approved on Thursday the second disbursement of aid for Greece, worth a total of 49.1 billion euros ($63.8 billion), saying that the countrys debt buyback will lead to a substantial reduction of the Greek debt-to-GDP ratio.
The Eurogroup reaffirmed that this, together with the initiatives agreed by the Eurogroup on 27 November and full implementation of the adjustment program, should bring Greece's public debt back on a sustainable path, to 124% of GDP in 2020, the group of ministers said in the statement.
Greece and the other euro area member states are prepared to take additional measures, if necessary, to ensure that this objective is met.
The aid will be paid in several tranches, with 34.3 billion euros to be paid out to Greece in the following days and the rest in the first quarter of next year.
An amount to cover the recapitalization of banks will be disbursed in January and funds to cover budgetary financing will be paid in three tranches, each linked to the implementation of specific milestones for restructuring the Greek economy that will be agreed with the troika made up of the IMF, the EU and the European Central Bank.
"I welcome the Eurogroups decision to support the debt buyback operation for Greece and its assurances to provide additional debt relief if necessary and provided Greece has achieved a primary budget balance in 2013, IMF managing director Christine Lagarde said in a statement.
These steps will ensure that Greeces debt-to-GDP declines to 124 percent by 2020 and to substantially below 110 percent by 2022. On this basis, I intend to recommend to the Funds Executive Board that it completes the first review of Greece's Fund-supported program. I expect that a Board meeting could take place in January, Lagarde added.
GREXIT ISSUE DEAD?
On Wednesday, the Greek Finance Ministry announced that it bought back 31.9 billion euros worth of bonds in exchange for 6-month, zero- coupon notes to be issued by the European Financial Stability Facility (EFSF) worth 11.29 billion euros.
The weighted average purchase price to be paid is around 33.8% of the value of the bonds, the ministry said.
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The highest unemployment rate was recorded among the young, with 56.6% of those between 15 and 24 years old without a job.
The deal on the release of aid has provided policy makers in Greece and the eurozone with some breathing room, but risks of a derailment still exist for next year, Ben May, European economist at Capital Economics, said.
Greek media reported that Prime Minister Antonis Samaras said that talk about an exit of Greece from the eurozone shortened to Grexit in the markets was dead following the Eurogroups accord to release the aid; but May believes that doubts over the countrys bailout could well resurface next year.
The first risk, according to May, is that Greece fails to comply with the conditions of the troika and thus becomes ineligible for further payments. The second is that even if Greece does meet all the demands, its economy weakens more than the 4% contraction expected by the troika for next year, forcing it to revise up again the forecasts for Greeces near-term financing needs, budget deficit and debt.
In the build-up to its general elections in the autumn, Germany could be faced with a nasty dilemma of either restructuring its Greek debt or refusing to offer Greece more help and effectively allowing the bailout to collapse, May said.In all, we expect doubts about the future of Greeces bailout to eventually resurface, perhaps even by the middle of the year.