Greece seeks to fix bor­row­ing costs in debt re­lief talks

Kuwait Times - - BUSINESS -

Greece is push­ing its cred­i­tors to fix the bor­row­ing costs on its mas­sive debt pile at cur­rent low lev­els in a bid to save mil­lions of eu­ros in coupon pay­ments if in­ter­est rates rise. The pri­or­ity is to fix the re­pay­ments on the largest chunk of the 228 bil­lion eu­ros owed to of­fi­cial cred­i­tors from its three fi­nan­cial res­cue pack­ages.

The 162.7 bil­lion eu­ros is owed to the Euro­pean Fi­nan­cial Sta­bil­ity Fa­cil­ity and the Euro­pean Sta­bil­ity Mech­a­nism, cre­ated by euro­zone gov­ern­ments to help coun­tries in dif­fi­culty dur­ing Europe’s debt cri­sis, a gov­ern­ment of­fi­cial said. The EFSF and ESM bor­row money to lend to Greece. Be­cause they plan to bor­row the money over a long pe­riod of time and pass on the costs to Greece, the gov­ern­ment is wor­ried that the re­pay­ments will rise if rates go up as ex­pected. The gov­ern­ment would like to swap it for fixed rate debt and has con­sulted pri­mary deal­ers in the bond mar­ket to get an idea of the kind of rate it could ex­pect, three deal­ers said. It hopes that this in­for­ma­tion can be used in talks with euro­zone of­fi­cials on Dec 5, they said.

The gov­ern­ment of­fi­cial told Reuters that low­er­ing the float­ing rate por­tion is nec­es­sary to help get the debt on a sus­tain­able path. “Swap­ping a por­tion of float­ing-rate debt into fixed would help avoid a po­ten­tial vi­cious cycle if in­ter­est rates rise in the longer term,” he said.

“If in­ter­est rate risk is not neu­tral­ized we could face a Sisy­phus-type sit­u­a­tion (on debt re­pay­ments).” In­cluded in the 162.7 bil­lion eu­ros is 31 bil­lion eu­ros of EFSF float­ing rate notes that were given to Greek banks.

Greece is try­ing to per­suade of­fi­cials to let it to swap these for new fixed-rate, longer ma­tu­rity pa­per. “This way we could lock this amount to a 30-year fixed rate,” the of­fi­cial said. In the medium term the gov­ern­ment also hopes to rene­go­ti­ate a fur­ther 52.9 bil­lion eu­ros of the of­fi­cial debt. This is bilateral debt owed to euro­zone cred­i­tors and was the first tranche of the res­cue pack­age.

That debt also has a float­ing rate. The rest of the 228 bil­lion eu­ros, about 13 bil­lion, is owed to the In­ter­na­tional Mon­e­tary Fund. The of­fi­cial also said Greece is hop­ing that the re­main­ing funds in the third ESM bailout will be is­sued “as much as pos­si­ble longer ma­tu­rity, fixed rate pa­per.”

Greece also has 57 bil­lion eu­ros in out­stand­ing bonds and 14.5 bil­lion of out­stand­ing T-bills. These are traded in fi­nan­cial mar­kets but they al­ready carry a fixed in­ter­est rate. Three pri­mary deal­ers of Greek debt told Reuters that gov­ern­ment of­fi­cials had been ask­ing them about the cost of swap­ping float­ing rate notes for fixed rate notes in the de­riv­a­tives mar­ket. “It may sound like wish­ful think­ing from Greece, but the is­sue here is debt sus­tain­abil­ity. If it be­comes im­pos­si­ble for Greece to pay back its debt, the whole thing falls apart,” one pri­mary dealer said. The ESM and EFSF, cre­ated in the wake of the euro zone debt cri­sis, are guar­an­teed and backed by euro­zone mem­bers and fund bailouts by is­su­ing bonds them­selves, and they pass their own bor­row­ing costs to their debtors. The ESM has been tasked by euro zone fi­nance min­is­ters with com­ing up with pro­pos­als for debt re­lief and will present its rec­om­men­da­tions at the Dec. 5 Eurogroup meet­ing.

“We are look­ing at all EFSF and ESM as­sets re­lated to Greece. ESM Man­ag­ing Direc­tor Klaus Regling aims at pre­sent­ing con­crete pro­pos­als to the euro area fi­nance min­is­ters at their meet­ing in De­cem­ber,” an ESM spokesman told Reuters. Greece has the back­ing of the In­ter­na­tional Mon­e­tary Fund: it rec­om­mended in May that EU author­i­ties fix all of the bor­row­ing costs at cur­rent lev­els. If this is ap­plied, along with two other mea­sures rec­om­mended by the IMF ex­tend­ing the ma­tu­rity of the debt and de­fer­ring pay­ments - it would re­duce Greece’s debt by 53 per­cent of GDP by 2040 and 151 per­cent by 2060, the fund has said.

How­ever, the IMF has ac­knowl­edged the po­lit­i­cal dif­fi­culty of im­ple­ment­ing these. “This would clearly be highly con­tro­ver­sial among mem­ber states in view of the con­straints, po­lit­i­cal and le­gal, on such com­mit­ments within the cur­rency union,” the IMF said in a re­port an­a­lyz­ing Greece’s debt sus­tain­abil­ity. As Europe’s largest econ­omy, Ger­many has the most ex­po­sure to ESM/ESF and bilateral debts. Mind­ful of crit­i­cism from vot­ers at home, the gov­ern­ment also took a tough line with euro zone coun­tries in fi­nan­cial dif­fi­culty dur­ing the debt cri­sis. Fi­nance Min­is­ter Wolf­gang Schaeu­ble re­stated his op­po­si­tion to debt re­lief for Greece last week. — Reuters

BAN­GA­LORE: In­dian vis­i­tors use vir­tual re­al­ity de­vices that can be used with a cell­phone at the Ben­galuru ITE Biz In­for­ma­tion Tech­nol­ogy Expo in Ban­ga­lore yes­ter­day.—AFP

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