| Greece: What's next? |
| 06.12.11 09:21 | |
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The IMF board decided yesterday to disburse the sixth tranche under the three-year SBA programme. This is likely to be the last disbursement the IMF will make under the current programme. A second programme is expected to follow; the IMF's participation and financial contribution to the next programme is not clear, but if the Fund decides to participate, its contribution could be limited to the undisbursed amount from the first programme (c EUR10bn). The IMF made it very clearly in the press release that "PSI and prolonged support at low interest rates from European partners are crucial to reduce debt to a sustainable level. Near-universal participation in the proposed private debt exchange will be important to realize a sustainable debt position, meet financing needs, and ensure continued IMF support". Greece now faces large solvency and funding gaps that will require sizeable haircuts (at least 50%) to bondholders and large official funding commitments to facilitate the upcoming debt exchange and maintain Greece, which will be out of the markets for several years. The disbursement of the sixth tranche by the EU and IMF will provide sufficient funds to the Greek government until mid-March 2012 (just before a very large bond redemption of c.EUR14bn by 20 March 2012). Both the PSI and the new programme must be completed by then. While negotiations on the PSI are continuing, we do not expect a full completion, including bond exchanges, in 2011. The completion of the PSI is a necessary condition to design the second programme, including the financial help to be provided by euro area countries (through the EFSF) and possibly by the IMF. Given the material deterioration in Greece's growth, fiscal performance and debt sustainability we cannot rule out a haircut larger than the 50% proposed on 26 of October, as well as possibly larger and longer-term funding needs. source: BarCap |
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