http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_17735_14/03/2012_433006
With bailout secured and approved, focus turns to polls
A few hours after the Eurogroup had given the green light for lending to Athens to begin, the Cabinet on Wednesday approved Greece’s new deal, thereby also marking the start of the countdown to general elections. The Cabinet met to approve the loan agreement with the European Financial Stability Fund (EFSF), which will be worth 109.1 billion euros, although the total amount of loans Greece will receive is 164.4 billion euros. Interim Prime Minister Lucas Papademos told his ministers that the coalition government “is nearing the end of its major and multifaceted effort to ensure the country’s funding over the next few years.” Papademos added that the decision by Fitch ratings agency to raise Greek bonds six notches from the previous default rating following the completion of the bond swap was the first positive result following the restructuring. Papademos added that several draft laws have to be voted through Parliament over the next few weeks before the government will be able to complete its task. He said another nine pieces of legislation have to approved by the Cabinet and submitted to the House before elections are held. Finance Minister Evangelos Venizelos announced after the meeting that he would be stepping down from his position immediately after the PASOK leadership vote on Sunday. Venizelos is the only candidate in the contest. “As soon as the internal party procedures are completed at PASOK, I have the duty to lead the party into elections under the best conditions,” he said in an interview with Alpha TV. It is expected that Papademos will take over as finance minister for the remaining weeks of his government’s terms. No date has yet been set for elections but they are expected to take place at the end of April or in early May. Greece is expected to receive almost 77 billion euros over the next few months from the eurozone and the International Monetary Fund. This includes 30 billion euros toward the issue of EFSF-backed bonds that will go to bondholders who took part in the debt swap. Another 5.7 billion euros will be used to pay off interest on bonds included in the swap, while 25 billion will be used to recapitalize Greek banks. Greece is due to receive another 23.8 billion euros for this purpose later this year. Another 5.9 billion euros will be used to pay bonds held by the European Central Bank. and.... Greek restructuring delay helps banks as risks shift
Delaying Greece’s debt restructuring by more than a year reduced banks’ potential losses as firms trimmed their holdings and most of the risk shifted to European taxpayers. When Greece was first rescued by the European Union and the International Monetary Fund in May 2010, lenders in other EU nations held $68 billion of its sovereign debt, according to the Bank for International Settlements. If Greece had defaulted, banks would have lost $51 billion at a 25 percent recovery rate. Banks’ holdings of Greek bonds fell by more than half to about $31 billion over the next 15 months, according to BIS, cutting creditors’ losses at last week’s swap by at least 45 percent. Lenders are protected against further losses thanks to sweeteners from the EU to encourage the exchange. Meanwhile, Greece’s debt remains almost unchanged and the risk of future default is now mostly borne by the public. The same playbook is being used with Portugal and Ireland. “This is a horrible deal for the EU taxpayer,” said Raoul Ruparel, chief economist at Open Europe, a London-based research group. “The longer we wait for these restructurings, the worse the deal gets for the public. There’s an ongoing risk transfer from the banks to the taxpayers.” New borrowing On the face of it, the swap chopped 137 billion euros ($179 billion) from Greece’s 368 billion-euro debt burden. The actual reduction is less than half of that because the country has to borrow from the EU and the IMF to provide new debt to private creditors and to recapitalize banks and pension funds that can’t handle losses from the swap.The new borrowing- in effect, replacing private with public debt -- will amount to 78 billion euros, according to the EU, leaving the actual relief from the swap at 59 billion euros. Greece also will need to draw money from a second, 130 billion- euro EU and IMF rescue fund to repay other private debt and finance the government’s budget deficit. That will leave Greece’s debt at 161 percent of gross domestic product at the end of the year, 4 percentage points less than the current level, according to a March 11 report by the European Commission. The ratio probably will return to 165 percent in 2013, the commission said. When all IMF and EU loans promised to Greece are disbursed, 66 percent to 75 percent of the country’s debt will be held by the public. In 2010, before the first bailout and before the ECB started buying its bonds, Greece had about 310 billion euros of debt, all held by the private sector. Taxpayers on hook If Greece has to restructure again, or defaults, taxpayers will be on the hook. “The swap doesn’t achieve debt sustainability for Greece,” said Nicola Mai, an economist at JPMorgan Chase & Co. in London. “Debt relief going forward will have to come from the public sector.” Banks reduced holdings of Greek bonds as they matured. Greece used loans from the IMF and the EU to make those payments. The ECB also has bought about 66 billion euros of Greek sovereign bonds from financial institutions since May 2010, JPMorgan has estimated. Commerzbank AG (CBK), Germany’s second-largest bank, reduced its holdings of Greek, Irish and Portuguese sovereign bonds by 70 percent to 1.6 billion euros in the past two years, including a 2.3 billion writedown, according to investor presentations by the firm. BNP Paribas SA (BNP), France’s largest lender, reduced its long-term exposure to the three countries’ debt by 61 percent to 2.6 billion euros in 2011, including a 3.2 billion-euro writedown, according to company statements. ‘Zombie banks’ “Relative to where banks were a year ago, they’re at a much better point,” said Roger Lister, a New York-based analyst who covers European lenders for credit-ratings firm DBRS Inc. “They may still face future losses, but those will be at a much smaller scale because their exposure is reduced greatly after all the actions by the EU.” The EU’s moves have favored banks, especially the weakest lenders that couldn’t bear losses from a Greek default, according to Peter Tchir, founder of New York-based hedge fund TF Market Advisors. “Every policy seems to be designed to help the zombie banks survive,” said Tchir, whose company focuses on European credit markets. It’s not only European banks that have been spared greater losses from exposure to Greece. If the country had defaulted in 2010, losses for all bondholders, including insurance companies and asset managers, would have been 232 billion euros, based on a 25 percent recovery. During last week’s swap, they ended up losing 107 billion euros.Portugal, Ireland A similar shift of risk to taxpayers is happening with Portugal and Ireland. The ECB has bought 20 billion euros of each nation’s debt, according to Open Europe estimates, while the EU and the IMF provided 78 billion euros and 85 billion euros, respectively, in new loans to replace private financing for the two countries. In Ireland, most of the public money has been used to pay the debt of failed Irish banks. The ECB and the Irish central bank have taken over financing of the lenders, providing about 140 billion euros of funding and transferring risk to taxpayers. Since the November 2010 bailout of Ireland, European lenders have reduced their exposure to that country’s banking system by more than half to 61 billion euros. While current and past Irish governments have tried to stop paying banks’ debts with public funds, the EU has rejected the requests. ‘Special case’ Portugal’s borrowing costs rose this month on concern the country might follow Greece into a debt restructuring. Portugal may get a second bailout package from the EU and the IMF this year, according to JPMorgan’s Mai. Unlike Greece, a second rescue won’t include a debt swap, he said. “As long as they continue to push for reforms, there won’t be a political motivation to get the private sector involved and take losses on Ireland or Portugal,” Mai said. Even if the political will materializes for a restructuring that involves private bondholders, it might be too late. Most of Portugal’s debt has shifted to the public, said Open Europe’s Ruparel. “They’d like us to believe Greece was a special case and won’t be repeated in other cases,” Ruparel said. “Greece is the worst case, but not a special case.” and the rescued party was not the Greek people who face even more austerity....
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