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Eurobank: Greece Macro Monitor 2 June 2015

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WP_20150523_055An update on Greece’s borrowing needs in 2015-2020 State financing risks to fall significantly after a pretty demanding 3-month period ahead

This note provides an update on Greece’s general government borrowing needs and sources of funding in the remainder of 2015 and in the coming several years. The analysis offers a detailed account of interest and amortization payments in the period ahead and examines the potential impact of a relaxation of primary surplus targets on a multi-year basis. One of the important conclusions highlighted in our study is that if Greece manages to successfully overcome a demanding 3-month period ahead in terms of sizeable debt service obligations (our baseline scenario), then financing risks are expected to fall significantly in Q4 2015 and in the following 5 years. This is due to a much lighter schedule of interest and amortization payments over that period as well as the 10-year deferral currently applied on principal (and a significant part of interest) payments on EU loans given to Greece under the two consecutive bailout programs.

Urgent need for a swift conclusion in the ongoing negotiations

At the time of writing this report negotiations between the Greek government and the institutions continued in an effort to find the necessary common ground to complete the present review and set the stage for a possible follow-up arrangement that would secure adequate state financing until the country has regained full market access. More imminently, a successful completion of the ongoing negotiations is urgently needed to allow the resumption of officialsector financing to the cash-strapped state, especially in view of a heavy schedule of external debt payments in the period ahead and the mere fact that Greece’s present loan arrangement with EU creditors is set to expire at the end of this month.1 In a series of earlier reports we analyzed the serious short-term financing challenges lying ahead, especially in the two-month period July to August. This report updates our analysis of Greece’s debt interest and amortization payments in the remainder of 2015. Furthermore, it looks beyond that period, providing a detailed analysis on the evolution of the general government borrowing needs and sources of funding up to the year 2020. One of the important conclusions highlighted in our study is that if Greece manages to successfully overcome a demanding 3-month period ahead in terms of sizeable debt service obligations (our baseline scenario), then financing risks are expected to fall significantly in Q4 2015 and in the following 5 years.

Debt interest and amortization payments in the remainder of this year and beyond

After meeting a debt payment of c. €750mn to the IMF on May 12 (thanks to the tapping of a special drawing rights account)2 , Greece is next scheduled to make a principal payment to the Fund on June 5 (c. €300mn). This would be the first out of four such payments due to the IMF this month, amounting to c. €1.6bn (June 12 c. €340mn, June 16 c. €565mn, June 19 c. €340mn). Speaking to reporters early last week, Greece’s government spokesman reassured that the government had the means to meet wage and pension payments due in late May (c. €1.1bn), but fell short of clarifying whether available funds are adequate to also cover the June 5 IMF principal…

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GREECE MACRO FOCUS June 2 2015

1 At the Eurogroup of February 20, 2015 it was decided to extend by four months Greece’s existing Master Financial Assistance Facility Agreement (MFFA) with EU creditors.

2 IMF member states are mandated to hold two relevant accounts; one where they deposit their annual quota, in effect their membership fee, and the other where they store reserves, including gold, in case of emergency.

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