Eurogroup agreed on the 2nd Greek bailout/restructuring of Greek debt. The main points are:
- Haircut on the nominal has increased from 50% to 53.5%
- Significantly there is NO mention on a “voluntary” PSI. The word has disappeared from the text of this Eurogroup pointing to shifting intentions.
- Eurogroup accepts that the ECB and the NCB purchases are held for public policy purposes. The gains may be given to back to Greece. The statement does not say whether the SMP gains would be passed in the form of a loan or gratis. The NCB gains would however be passed back.
- There would be closer on-site monitoring by the commission on Greece. In other words, Greece would have Nanny Mcphee for the next few years “…ensuring the timely and full implementation of the programme.”
- A segregated account where Greece is going to pay the next quarter’s debt would be created.
- A constitutional change giving priority of payments to Greek debt. Reactions to this would be interesting to watch. I guess that it would not be taken lightly by many political parties back in Greece.
- Eurogroup is aware that more sacrifices would be needed by the Greek people.
- The interest rate would be lowered to 150bp on the Greek Loan Facility
- The IMF is expected to make a significant contribution till 2014
This new bailout although it apparently increases the financial help and sustainability of Greece it also increases the political risk of non-compliance and resentment. The greatest fear is that many would see the running of the country as national humiliation and a rallying point for anti-European forces. In the movie the unruly children start respecting the Nanny and finally accept her as a friend. This is however, a fictional happy ending that has low chances of success in Greece.