Debt-easing plans on the table

Market sources hope for improvement on French and ESM proposals regarding extension of bond maturities

Bond market sources in Greece are hoping for an improved version of two Greek debt easing blueprints leaked late on Tuesday, particularly regarding the extension of bond maturities.

German newspaper Handelsblatt said France and the European Stability Mechanism have tabled two proposals for the easing of Greece’s national debt that associate debtservicing costs with the growth rate of the Greek economy until 2050 and refer to the extension of bond maturities.

“I believe there will be something more in the end,” a source who is familiar with negotiations to date commented yesterday. Another bond market source argued that the German daily presented two out of the 10 scenarios that have recently come out, with the French and the ESM blueprints being among the least favorable for Greece.

Nevertheless it is clear that the publication of proposals that are along the lines of the commitments of last June’s Eurogroup meeting is paving the way for significant developments, and in this sense this was well received by the market. After all, Handelsblatt itself noted that Greece can now hope for a change in Germany’s attitude compared to Wolfgang Schaeuble’s time at the helm of Berlin’s Finance Ministry.

The newspaper said France recommends that debt repayment obligations be reduced if the growth rate (as a five-year average) comes to below 3.4 percent, while Greece should be exempted from loan repayments if it drops beneath 2.8 percent. Only if growth exceeds the 3.4 percent threshold should Athens continue to pay off its debt normally.

The sources clarified yesterday that the growth rate will be nominal, so with a 2 percent inflation rate Greece would not have to pay toward its debt if its growth rate is actually below 0.8 percent. According to this scenario, they added, the International Monetary Fund’s forecast for growth around 1 percent would mean debt repayment would be just over zero.

The ESM appears more conservative, calling for a ceiling on the debtservicing costs of 1.5 percent of Greek gross domestic product if growth drops below a specific level, possibly 3.25 percent.