Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Some Interesting Debt Issues

Posted by hkarner - 20. Juli 2017

Wednesday, July 19, 2017,  Observing Greece

This article from the Ekathimerini suggests that the Yanis Varoufakis who had just become Finance Minister was quite different from the Yanis Varoufakis who had been seduced by fame only a few months later. The article quotes a document which Greece had submitted at the February 16 Eurogroup meeting (February of 2015, that is). In it, views were expressed by the Greek side which were reasonable and appropriate. Here is an excerpt:

„In this document, the debt-to-GDP ratio is calculated in terms of net present value and estimated at 135 percent. The document dating from just three weeks after the elections – and repeatedly citing the head of the European Stability Mechanism, Klaus Regling – states in a special appendix that: “The misunderstanding regarding Greece’s solvency is owed to the fact that the blunt 175 percent debt-to-GDP number does not fully describe the actual burden of public debt over the Greek economy.” The borrowing conditions of the European Financial Stability Facility (EFSF) as well as Greek Loan Facility (GLF) loans (the latter being the bilateral arrangements of the first bailout) are characterized as highly concessionary.“

I should add that in my communications with Varoufakis prior to his becoming Finance Minister, we had exchanged views along the same lines and I felt confident that he would pursue negotiations along these lines. Well, somewhere along the lines there was an abrupt personality change!

On a separate front, Bloomberg reported that the reason why Greece had to shelve the idea of returning to the markets with a new bond issue was that it would have exceeded the debt ceiling set by the IMF. Presumably, there will be a bit of an uproar about the fact that the IMF would restrict, prohibit and/or disable Greece from borrowing in international markets.

The uproar would not be justified. It is only natural that the creditors would put a ceiling on total debt which their borrower can accumulate. According to Bloomberg, Greece’s creditors do not allow the country to increase its indebtedness beyond the levels set out in the program. The program provides for enough new funding to refinance maturing debt. If Greece can secure funding for the refinancing of maturing debt from third party sources, the creditors would be more than happy but then they would reduce their commitments in a corresponding amount.

 

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