Greek Austerity Deal Opens Up Potential Path Out of Bailout.ATHENS—Greece and its international creditors sealed a deal Tuesday over fresh austerity measures, keeping its €86-billion ($93.74 billion) bailout on track and clearing the way for debt-relief talks that offer the best chance in years for the battered Greek economy to begin healing.
Since Greece’s first bailout in May 2010, its economy has been in near-constant decline, having shrunk by more than 25% in seven years under the pressure of €70 billion of spending cuts and tax increases demanded by international creditors. Greece’s economic crisis has been as severe as the 1930s Great Depression in the U.S., but has lasted longer, according to International Monetary Fund calculations.
Now, Prime Minister Alexis Tsipras is betting that by conceding to more belt-tightening—including pension cuts and broadening the tax base—he can win a bigger prize: A restructuring of Greece’s crushing €315-billion debt that will lure back international investors and revive the country’s economy.
[expander_maker more=”Διαβάστε περισσότερα” less=”Διαβάστε λιγότερα”]Such a restructuring and a return to the capital markets could mark a turning point. Years of thorny negotiations have exacted an enormous social and economic toll and threatened an exit from the eurozone, a potential earthquake for the common currency.
It also comes as confidence in the EU is slowly returning, as the threat of populism appears to be receding and the region’s economy finally recovers after a long and painful downturn.
“This could be the beginning of the last phase in Greece’s crisis,” says Panos Tsakloglou, economic professor who represented Greece in eurozone finance meetings in 2012-14.
Tuesday’s agreement will release around €7 billion payment without which Greece would be insolvent by July. But more important, it sets the conditions for talks—possibly by the end of May—with creditors on a deal to lengthen the maturity and lower payments on Greece’s debt.
If the debt becomes more sustainable, the European Central Bank could decide to include Greece in its bond-buying program, effectively clearing the way for Athens—which has been shut out of international bond markets since 2010, except for a brief window in 2014—to return to capital markets for financing.
Other European Union countries that needed bailouts, such as Ireland, Portugal and Cyprus, have long returned to capital markets.
Under ECB rules, the central bank would purchase no more than €3 billion of Greek bonds. However, “if the country becomes eligible [for the bond-buying program], borrowing costs will go down, Greece will regain access to markets and attract international investors’ interest, a substantial factor in re-engineering growth,” says Nikos Karamouzis president of Hellenic Bank Association and Greece’s lender Eurobank .
The Greek economy has paid a heavy price for theyearlong delay in debt talks and the tussle with international creditors over the next bailout payment. The interest from international investors in Greece assets that resurfaced last spring evaporated. Meanwhile, Greeks withdrew €2.3 billion in deposits from the country’s banks in the first two months of the year.
The economy contracted 1.2% in the fourth quarter of 2016, halting the gradual decline in Greece’s sky-high unemployment rate and pushing lending down 6.6% in February, according to UBS. Economists now expect gross domestic product to grow 1.5% this year, down from a 2.7% forecast late 2016.
Bankers say interest from foreign investors could return now. Distressed -debt investors are eyeing packages of bad loans, they say, while there has been interest in Greek real estate, whose prices are down by as much as half since the start of the crisis. There are also opportunities in tourism, which will likely see a record year in Greece in 2017.
“The time is now and the time is right,” says John Koudounis, a leading investor in Greek-American consortium EXIN. “The Greek economy is close to bottom—if not [already at] bottom—and will turn around. [However], it’s not going to happen overnight.” EXIN and Chinese fund Fosun are the two front-runners to buy a majority stake in a large insurance fund.
Tuesday’s deal also includes measures aimed at rendering the economy more competitive, including legislation to encourage out-of-court settlement for companies to work out their debts to banks, tax authorities and suppliers.
If the ECB includes Greek sovereign debt in its bond-buying program, Athens could expect to sell bonds with an interest rate of about 4%, according to some experts. While that is higher than the 1% it now pays for bailout funds, a return to capital markets by the government would trickle down by helping lower the interest rates Greek banks and companies now pay to issue bonds.
It could also ease access to capital markets for the many Greek companies currently shut out of bond markets. A handful of export-oriented firms such as oil refiner Motor Oil and gaming companyOPAP have issued five-year bonds with coupons of about 3.5%, but small companies struggle to secure any financing at all.
Enormous obstacles, however, remain. Greece’s serious problems mean the International Monetary Fund doesn’t expect the country to grow more than 1% in the long term.
The insistence by Greece’s creditors on large budget surpluses means the country, whose government debt is 179% of GDP, will live with extremely tight budgets for many years.
Greek banks are immersed in nonperforming loans, which make up 45% of all lending, contributing to a steady contraction in private credit since late 2010. And officials privately don’t expect a wholesale solution to the NPLs problem soon.
Source:link [/expander_maker]
