I said it once and I will say it again. This Debt Crises in Greece and all of the EU is nowhere near done or getting better. ~ Craig Eisele
Greece has won sufficient support from its private-sector creditors to clinch a new bailout package, as it announced on Friday morning that 85.8% of bondholders had agreed to take heavy losses on their investments.
At the end of several months of wrangling with creditors, the government reassured markets that it saw take-up for its bond swap deal rising to more than 95% once special clauses were triggered to enforce the agreement. Market players are hopeful that the move will at least briefly quell fears that the Greek crisis will send more shockwaves across Europe and beyond and further harm the global economy.
Here is a round-up of policymakers’ and analysts’ reactions:
Olli Rehn, the European Union’s economic and monetary affairs commissioner, welcomed the take-up of the bond deal.
“That contribution by the private sector is an indispensable element to ensure future sustainability of the Greek public debt and, thus, a decisive contribution to financial stability in the euro area as a whole.
“In doing so, investors recognise that Europe has committed an important amount of funds to this voluntary debt exchange and to the Greek programme to move forward. Indeed Greece’s international partners have made an unprecedented effort of solidarity to support Greece in its efforts to restore sustainability of its public finances, reform the economy and public administration, and thereby to return to growth and jobs.
“I now expect the Greek authorities to maintain their strong commitment to the economic adjustment programme and to rigorously and timely implement the policy package. This second programme is the cornerstone of our efforts to boost sustainable growth and jobs in Greece; it is a unique opportunity not to miss. Furthermore, the success of this programme is a cornerstone of our comprehensive response to the current crisis.”
The French finance minister, François Baroin, described the deal as a success.
He told RTL radio: “It’s something that allows us to stay on a voluntary basis that avoids the risk of default.”
The German government spokesman Steffen Seibert said the chancellor, Angela Merkel, saw the result as “encouraging”. He added: “The high take-up rate among private creditors opens the way to the largest debt restructuring of a country in history.”
The Greek finance minister, Evangelos Venizelos, thanked creditors for helping return “Greece to a path of sustainable growth”.
“On behalf of the republic, I wish to express my appreciation to all of our creditors who have supported our ambitious programme of reform and adjustment and who have shared the sacrifices of the Greek people in this historic endeavour.
“With the support of our official sector and private creditors, Greece will continue implementing the measures needed to achieve the fiscal adjustments and structural reforms to which it has committed, and that will return Greece to a path of sustainable growth.”
Martin Köhring, an economist at the Economist Intelligence Unit, said the “successful” bond swap meant that Greece would not face a disorderly default when it needs to refinance around €14.4bn (£12bn) of bonds on 20 March.
“The carefully scripted sequence of events that Greece and its eurozone leaders have foreseen to prevent a chaotic default and keep the country within the eurozone for the time being has worked so far.
“However, a successful debt swap and subsequent approval of the €130bn bailout do not suddenly solve the Greek debt crisis. They only buy the eurozone some more time to prevent major contagion to other vulnerable euro area countries such as Portugal, Spain and Italy.
“For Greece, the problem of lack of growth amid the deep fiscal austerity measures will continue as the eurozone rescue package continues to focus primarily on ways to guarantee prompt debt repayment rather than a medium-term growth strategy for Greece.”
Elisabeth Afseth and Brian Barry, fixed income analysts at Investec, said it looked as if most investors agreed the deal was probably the best they were likely to get.
“The result of the exchange is as good as could be hoped for and the prospect of a disorderly default at the end of the month has receded significantly. It is not the end of Greece’s problems though.
“The next ‘event’ is likely to be the election expected in April or May where the political commitment to the second support package will be scrutinised by Greece’s European partners. And for the foreseeable future each quarterly troika review will be awaited with bated breath as the conditionality of the loans require not only considerable effort from Greece but also a bit of good luck.”
Athanasios Vamvakidis, a foreign exchange strategist at Bank of America, warned that risks remained for the single currency.
“The May elections are a key risk in Greece. Recent polls suggest that the continued recession is turning the Greek public against the adjustment programme. The polls so far this year give an average of 41% to parties against the programme, compared with 37% to parties that support the programme – the rest includes undecided voters and small parties.
“We believe that even if these polls turn out to be wrong, uncertainty as the elections approach could fuel further Greek-driven market volatility in Europe. If the elections lead to a government against the programme, or no government at all, the shock could even have systemic implications for the eurozone.”
Louise Cooper, a markets analyst at BGC Partners, described the deal as “just one small step along a very long and difficult road which is still likely to end in a car crash.”
“The new 30-year Greek bonds that investors will exchange old bonds into are already being quoted in the ‘grey, when issued’ market. The indicative price is around 15-20% yield.
“This tells us that investors think that Greece is still a high-risk investment, that it will need more bailout money, it still does not have a sustainable level of debt and that Greece may default again in the future. Now these are very indicative prices at the moment, but they do not inspire confidence and suggest that the 2042 bonds will prove as damaging to investors’ wealth as the old Greek bonds.”
Jason Gaywood, a consultant at the currency company HIFX, noted that currency and equity markets had been muted in the wake of news of “the biggest ever sovereign debt restructuring”.
“Bondholders will now receive as little as 26% of face value. The take-up of this deal which is widely seen as ‘the least bad option’ means that Athens can force the majority of remaining dissenters to take the deal by enforcing retroactive collective action clauses.
“The overall aim is to cut Greek government from 160% (of GDP) to just over 120% by 2020. Whether this aim is achieved or not, only time will tell. However, 120% of GDP is still a level of debt that may be described as unsustainable and with Greece in its fifth year of recession and facing extreme austerity for the foreseeable future, it is very difficult to see how Athens can steer a course back to prosperity from here.
“Sadly, most commentators recognise that Greece is probably past saving within the euro. In order to survive, Athens needs to be cut free of its economic shackles, devalue its currency and gradually trade its way out of a hole.
“However, political leaders elsewhere in the eurozone who are facing domestic elections this year or perhaps head a weak coalition government are motivated more by short-term political wellbeing rather than the economic wellbeing of the EU as a whole.”
Raoul Ruparel, the head of economic research at the EU reform thinktankOpen Europe, warned that the deal could prove to be a “pyrrhic victory”.
“With the use of CACs [collective action clauses] Greece has entered a coercive restructuring or default – something which Greece and the eurozone have spent two years trying to avoid. While the financial markets can handle the triggering of CDS [credit default swap] that this will entail, at some point serious questions need to be asked over the amount of time and money which policymakers have wasted on what has ultimately amounted to a failed policy. Instead, Greece should have undergone a full restructuring combined with a series of pro-growth measures.
“There will be plenty of optimism in the corridors of power around the eurozone today, some of it justified – Greece has avoided a chaotic and unpredictable meltdown. However, this deal could end up being a pyrrhic victory: the debt relief for Greece is far too small which means that another default could be around the corner, while the austerity targets are wholly unrealistic and kill off growth prospects.”
Antje Praefcke at Commerzbank sees only limited support for the euro.
“In order to reach a level of 95.7%, the collective action clauses have to be activated. This corresponds to a default according to the ISDA definitions (the decision will be taken in the early afternoon), but an uncontrolled Greek default will be avoided. Markets have more or less priced in such an outcome. At best, we expect a short relief rally in the euro, since uncertainty remains high and the market has already priced in much of the positive aspects.”
Michael Hewson, a senior market analyst at CMC Markets UK, flagged up challenges ahead.
“Questions still remain about the status of some foreign law bonds the deadline of which has been extended to 23 March, but it would appear that a disorderly default has been avoided for the time being and that Greece is now less broke than it was a few days ago.”
Mark Schofield at Citi says new Greek bonds are likely to remain under pressure.
“We continue to think that, while the PSI (private-sector involvement deal) has been a welcome success in terms of averting more near-term volatility and stress, Greece still faces significant hurdles in reaching the current debt to GDP target of 120%(and that is still 120%!).
“This leads us to believe that, while domestic Greek holders of the bonds may well retain them, international holders, particularly those measured against government bond benchmarks that do not include Greece, will be keen to sell them before they take any more pain.”