Over the weekend, Europe offered
a special deal to debt-ridden Greece: loans of up to $40 billion (or 30 billion
euros) at a mere 5 percent interest rate. Will the deal put Greece in the clear, and will Greece even take it?
- A Backup Option, a Good Interest Rate "The most remarkable thing about the [offer]," says 24/7 Wall St.'s Douglas McIntyre,
"is the interest rate–5%. The yield on Greek sovereign debt was well
over two points higher than that just last week." Of course, "Greece
will try to raise the money on its own this upcoming week. The 30
billion euro nation plan is a backstop if the Greek plan fails." He
doesn't see Greece managing to raise money through taxes, or on the
- Three Important Things About the Deal, Three Questions The BBC's Stephanie Flanders
lists "three key features" peculiar to this new, more concrete offer of
aid: "First: there's the higher headline figure." That's good:
"European officials will have at least learned one lesson from past
IMF-assisted bail-outs: when the package is formally unveiled, it helps
if you can give the markets more than they expected." Second, "we have
a sense of the interest rate that Greece would be charged." Third, this
statement "has [European Central Bank German representative] Jurgen
Stark's fingerprints all over it." The questions that remain:
what exactly are the conditions of the support plan, and how soon could
it be triggered? ... Second, and related, will the IMF require the
Greeks to tighten policy a lot further in the next year or two? ...
Third, and the most important question--also the one most likely to be
glossed over in the coming weeks-is whether this gives Greece a better
chance of coming out of this with its economy, and its standing as a
sovereign borrower, intact.
- A Last-Resort Temporary Fix This offer won't change, Peter Boockvar notes at Barry Ritholtz's The Big Picture, "the tough economic outlook and lack of competitiveness in Greece."
- Indeed: Greece Is Still Screwed The Financial Times's Wolfgang Münchau predicts the deal will solve the problem of Greece's "near-term insolvency."As a result, "Greece will not default this year." But Münchau announces he's sticking with an earlier prediction he made: "Greece will eventually default. The numbers simply look too bad." Here are some of the reasons this deal isn't the final word on Greek solvency:
For example, what will happen if Greece fails to repay the loan? Will
the bond market interpret the deal as a sign that the EU will not let
anyone fail who acts in good faith? Or will it start testing the EU’s
solidarity for Portugal and possibly even Spain or Italy? There will
come a point when the EU will no longer be in a position to help, even
if it wants to.
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