Impending Permanent Support Mechanism and a new Memorandum

If the interest rates at which the lenders provide funds to the country are not reduced, the Ministry of Finance has admitted to the possibility of an appeal to the Permanent European Support Mechanism, EFSF after 2010, thus showing that the economic policies have failed.

For the first time, the minister leaves open the possibility that the country will not be able to cover the 25-30 billion in repayments through the Troika in 2012, thus providing a fertile ground for yet another loan (or a new Memorandum).

It is characteristic that after the minister’s statements, the Greek stock market which had been following the upward trend of foreign markets, turned to a -2.5% slump while the ten-year government bond soared to more than 1140 units, indicating a lending rate of 15%.

Officially Mr. Papakonstantinou told reporters that the Greek debt is bearable and the government’s goal remains to get Greece back on the markets by 2012. He categorically ruled out the possibility of a Greek debt restructuring , stating however that the government does not intend to enter the “interesting” restructuring discussion, which poses enormous risks for the Greek economy, banks, households and businesses.

For the 2012 loan there are two alternatives, according to the Finance Minister:
-    A “reasonable rate” loan from the market
-    The Financial Stability Fund buying bonds from the primary market.

“We need to set the exact terms before deciding on the second option”, explained the Finance Minister, and added that “We believe that we can enter the markets in early 2012 if our image in the markets is improved”.

In the words of Rehn.

On the possibility that the 27 billion will be entirely financed by European aid, the minister stated that: “there is no intention to push Greece into a deadlock”, without appearing so confident about it.  Thus, he appears to leave open a “window of opportunity” for a new loan with new terms. As stated, the evaluation of the Greek debt sustainability depends on interest rates found in the market place.

When asked when the country will enter the markets and find 27 billion to cover debt repayments, Mr. Papakonstantinou stated that Greece’s entry into the markets will have to be achieved by 2012 at the latest, otherwise the country will need to obtain funding from the new European financial stability fund.

He heralded the advent of the Troika, as well as the issue of diaspora bonds, from June onwards.

“We insist on the implementation of the program, as well as on financial adjustments”, stated the Finance Minister and stressed that “the Greek debt is absolutely viable”, sending a message to all markets willing to listen.

“The markets have not reacted to the medium term action plan”, he explained. “They reacted to the general clime surrounding the restructuring scenarios.

We have a broader problem in the Eurozone; for example, there is the Portuguese turbulence. The spreads are rising all over the region, so there is intense speculation about restructuring. How can we positively impact the medium-term plan of Greece?