Greece : Details, dates and disbursements Over the weekend the stream of headlines regarding the various negotiating positions of the ECB, IMF and Eurozone governments has continued. We briefly summarise the current stances of the ECB, IMF and Eurozone governments; highlight the key dates for decisions to be made and provide our best estimates for the amount of additional financing that Greece will need.
Bear in mind throughout the note that there are two financing issues now in question. The first is the fifth planned disbursement of EU/IMF funds scheduled for June 29. The second is how Greece will meet the anticipated shortfall in refinancing from March 2012 onwards which was previously assumed to come from a return to market refinancing of the bulk of its medium-to-long term debt redemptions.
HEADLINES AND NEGOTIATIONS
First it is worth recapping the negotiating positions of the various institutions. The ECB has consistently argued against any kind of debt restructuring. Its mantra has been “implement the plan” and the most recent threat has been to warn that re-profiled government debt may not be acceptable as collateral. The views of governments have been less consistent; with Germany et al recently becoming more vocal on the need for some kind of private sector burden-sharing sooner rather than later while other countries favour longer maturities and lower interest rates as well as more aggressive measures by Greece.
As of late last week the IMF appears to have forced the situation closer to a conclusion; by apparently threatening to withhold its share of the June 29 disbursement if Athens/EU cannot show that Greece can meet financing needs in the coming year. In other words it wants financing assurances from Europe. Given that the IMF only agrees to provide financing to support a fiscal adjustment programme in a debtor country on the grounds that the debt burden is sustainable, it is unsurprising that the IMF is unwilling to provide ongoing assistance while its EU partners are they themselves now openly discussing the possibility of some kind of debt “re-profiling” and/or burden sharing.
The next disbursement of EU/IMF loans is due on June 29. The total amount is EUR12bn of which EUR3.3bn is due to come from IMF while EUR8.7bn will come from EU governments. There has been some discussion in recent weeks that Europe could make up the shortfall if the IMF funds are not forthcoming but at least one government (the Netherlands) has already threatened to pull out of the Greek programme if IMF support is not ongoing. Others would struggle to get their national parliaments on board too without the IMF endorsement.
Hence the IMF’s stance has now prompted the apparently more conciliatory approach by the German government which, according to this morning’s Wall Street Journal, is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new support package for Greece.
WHAT NEXT?
The most likely scenario is that the EU/IMF will agree to give Greece more money, more time to narrow the deficit and regain market access and possibly even another reduction in the interest rate in exchange for more tough measures and more loss of sovereignty. The latter is expected to include international involvement in tax collection as well as in the recently-announced plan for the privatisation of state assets. In an environment where concerns are also growing about the risks of “austerity fatigue” the revised programme may also include some steps designed to win political consensus for more austerity: for instance Reuters reports a German source that the troika will has agreed to a cut in value-added tax of as much as 3% points.
HOW MUCH MONEY IS NEEDED?
Greece has so far received EUR53bn of the original EUR110bn programme. As shown in table 1, under the existing EU/IMF programme Greece is scheduled to start rolling over roughly three-quarters of its medium-to-long term debt from March 2012 onwards. If the revised programme simply acknowledges that this is not possible and seeks to make up the shortfall, Greece would need additional funding of EUR32.5bn by the end of Q1 2013. It could be bigger than this if the programme also assumes that Greece will not be able to rollover the 3-mth and 6-mth T-bills as anticipated in the programme. (Note that these numbers have not included the planned privatisations from which the estimated proceeds in 2011 and 2012 are now put at EUR7.5bn-11.5bn.)
If the programme is also lengthened beyond May 2013 then additional funds would also be required. As a guide, according to the latest IMF review the total refinancing needs will be an estimated EUR47bn in 2013 and EUR49bn in 2014 even after adjusting for the EU/IMF maturity extension from 4 years to 7.5 years.
THE TIMELINE
News of the IMF’s fifth review of Greece, which has been underway for the past few weeks, had been expected by end-May. Press reports that Greece had failed all of the criteria in the review have been denied and discussions are ongoing. The latest press reports suggest the negotiations between the troika (the EU, IMF and ECB) and the Greek government are now expected to be concluded tomorrow (Wednesday) and the findings made available by the end of the week.
There are unconfirmed reports of another extraordinary meeting of EU finance ministers to be held on June 6th while the key scheduled meetings are the Eurogroup/Ecofin finance ministers meeting on June 20th and, most importantly, the EU Council (Heads of State) meeting on June 24th. The latter had been scheduled to reach an overall agreement on the revamped EFSF (to expand it and allow it to buy government debt in the primary market) and the Euro Plus Pact (designed to achieve greater economic convergence) but a new deal for Greece is now also likely to be on the agenda.
KICKING THE CAN FURTHER DOWN THE ROAD
None of the above entirely rules out the possibility of some kind of private sector burden-sharing sooner or later. Indeed it may be necessary to ensure ongoing public support in creditor nations. Hence, there is still the possibility of, for instance, a “Vienna initiative”-type of voluntary debt rollovers by private holders of Greek debt maturing in the near-term. Hence while we expect a new larger package for Greece to be agreed in the coming weeks this is highly unlikely to be end of the story with all of the current mechanisms still only addressing the financing issue rather than the debt overhang.
HSBC Global Research