04 MAY 2010
By Richard Barley | Wall Street Journal
This is not the beginning of the end, not even the end of the beginning. The International Monetary Fund and euro zone's €110 billion ($145.37 billion) three-year Greek debt support package still needs to be given final approval by 15 euro-zone leaders. They in turn must satisfy themselves—and their national governments and voters—that there's a reasonable chance their loans can be refinanced, rather than turning into a straight fiscal transfer. That's far from certain.
First, the plan does not buy Greece quite as much time as it appears. Of the €110 billion headline figure, €10 billion is going to a Financial Stability Fund to support Greece's banks. Greece needs around €30 billion for 2010; for 2011-2012 debt and interest payments alone total €93 billion, according to Barclays Capital. So even with the program, Greece is likely to need to return to the markets in late 2011 or 2012. Ideally it would return as soon as possible, if the plan works.
Second, debt will still be rising in 2011 and 2012, topping out only in 2013 at an eye-watering 149% of GDP. In 2012, the budget deficit is still forecast to be 6.5% of GDP. Greece's credit ratings may then be even lower than they are today; this may further complicate market access. Bond investors will have to be convinced already in 2011 that the debt trajectory and economy will turn around decisively, in order to engender private interest in Greek debt.
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