Fitch says Greek deal pos­i­tive but risks re­main

The Pak Banker - - Front Page -

LON­DON

Global rat­ing agency Fitch says the an­nounce­ment of an agree­ment aimed at se­cur­ing Greek debt sus­tain­abil­ity and al­low­ing the next dis­burse­ment of fi­nan­cial aid eases the im­me­di­ate threat of a Greek sov­er­eign de­fault or eu­ro­zone exit.

This is pos­i­tive for Greece and for other eu­ro­zone sov­er­eigns. The deal could help put Greece's sov­er­eign debt on a sus­tain­able foot­ing, although key ques­tions re­main to be an­swered, and im­ple­men­ta­tion risk is high.

Phased debt ser­vice re­lief mea­sures - notably fur­ther cuts in in­ter­est rates on the Greek Loan Fa­cil­ity of 100bp and a 10-year de­fer­ral of in­ter­est pay­ments by Greece on Euro­pean Fi­nan­cial Sta­bil­ity Fa­cil­ity (EFSF) loans - and the re­mit­tance of Euro­pean Cen­tral Bank prof­its on the Se­cu­ri­ties Mar­kets Pro­gramme port­fo­lio, com­bined with a pos­si­ble debt buy­back, should help to close fis­cal fi­nanc­ing gaps and put Greece's debt/GDP ra­tio back on track.

We es­ti­mate that debt ser­vice re­lief, ECB re­mit­tances, and an al­lo­ca­tion of EUR10bn to buy back bonds from pri­vate sec­tor cred­i­tors at ap­prox­i­mately 35 cents in the euro, could see debt/ GDP peak at around 179% in 2014, be­fore de­clin­ing to 124% in 2020, broadly in line with the eurogroup's own pro­jec­tions.

Tues­day's agree­ment recog­nises the huge po­lit­i­cal cap­i­tal ex­pended in se­cur­ing Greek par­lia­men­tary ap­proval for ad­di­tional aus­ter­ity mea­sures, and con­firms that the eurogroup is still think­ing of so­lu­tions to the Greek cri­sis that will keep the coun­try in the eu­ro­zone.

If the next EFSF dis­burse­ment of EUR43.7bn ( EUR10.6bn for bud­getary fi­nanc­ing and EUR23.8bn in EFSF bonds ear­marked for bank re­cap­i­tal­i­sa­tion in De­cem­ber and the re­main­der in the first quar­ter of next year) takes place as en­vis­aged, it will pro­vide much needed liq­uid­ity to cover deficits, pay down ar­rears, and con­tinue to re­cap­i­talise Greek banks. The De­cem­ber dis­burse­ment re­quires ap­proval by eu­ro­zone na­tional par­lia­ments and a re­view of the pos­si­ble buy­back, while Greece must meet agreed mile­stones (in­clud­ing im­ple­men­ta­tion of tax re­form by Jan­uary) to be agreed by the Troika, to re­ceive the Q113 pay­ments.

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