Service of the debt in Greece : Myths and realities

Philippe Ithurbide, Didier Borowski and Tristan Perrier from the research and strategy team at Amundi, decrypt the Greek debt situation.

Negotiations between Greece and its creditors concerned structural reforms, a bailout plan, banks recapitalisation … but they also concern public debt, service of the debt and debt restructuring.

Solvency is still a major worry as the IMF recently stressed: with a severe recession, austerity programmes, insufficient fiscal surplus, and a weak ability to collect taxes, the situation cannot improve.

Some observers consider the service of the debt being the major drain to the action of the government. Where do we stand exactly?

Do not underestimate the large advantages obtained in the recent years, in regard to payments, both on ESM loans and bilateral loans. Even the ECB is a gentle creditor.

ESM loans: Greece does not pay any interest on €141.8bn. In November 2012, Greece has obtained a 10 years moratorium (while maturity was increased to 32 years).

Greece will start paying interests in 2023, at 1.5 %interest on average. Klaus Regling, the Managing Director of the European Stability Mechanism (ESM), considers this as a “gift” to Greece of €8.6 bn per year, i.e. more than 4% of Greek GDP.

Bilateral loans from the Eurozone: these loans (€52.5bn) have started in 2010 (€15.17bn from Germany, €11.39bn from France, €10.01bn from Italy, €6.65bn from Spain, €3.19bn from Netherlands, €1.94bn from Belgium, €1.55bn from Austria, €1.10bn from Portugal, €1bn from Finland, €0.35bn from Ireland, €0.24bn from Slovenia, €0.14bn from Luxemburg, €0.11bn from Cyprus and €0.05bn from Malta.

The maturity of these loans has been extended in 2012 to 30 years, and a 10 years moratorium has been accepted. Interest rates have also been reduced several times, and they are at present at 50 bp above market conditions.

ECB. Let’s recall the ECB is not making any profit from Greek bond holdings: it pays back 100% of interests received from Greek bonds to Greece, and does the same for any value-added on Greek bond holdings.

Thanks to these measures, the service of the debt was around 3% of GDP at the beginning of the year, to be compared with Portugal (5%), Italy (around 4.5%), Ireland (4 %), France (2.2%) and Germany (1.9%).

In sum, the service of the debt lies on ECB, IMF and private creditors only. Creditors granted major advantages to Greece, but it is not sufficient: in 2015, Greece has to face a mountain of redemption (around € 38 bn) of T-Bills, Bonds and loans ….

And in the coming 10 years, on top of Bills, bonds and loans (between €6 and € 7 bn per year), Greece will have to pay back € 48.5 bn capital (€ 27 bn to the ECB and €21.5 bn to the IMF) and € 7.3 bn interests (€5.2 bn to the ECB and €2.1 bn to the IMF).

How to meet these financial obligations without aid?

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