Tuesday, November 27, 2012

Eurozone offers more Greek myths

by James Mackintosh

Financial Times

November 27, 2012

If only Greeks could live on rhetoric, Brussels would be able to provide something useful. As it is, eurozone leaders spout half-truths while doing little to pull Greece out of economic depression.

Exhausted finance ministers ended yet another marathon negotiating session on Monday night having agreed one important thing but denied doing it: they took losses on their loans to Greece. They will also give the country the cash to stumble on to next year.

Germany succeeded in blocking the explicit writedown of Greek debt that the International Monetary Fund would like to see. But by cutting interest rates, handing back central bank profits, extending debt maturities and deferring interest payments for a decade, Dario Perkins at Lombard Street Research estimates the deal gives Greece €12bn – 5 per cent of gross domestic product – by 2020.

The point of this second restructuring of official debt in 18 months (as well as a bond default) was to give Greece “sustainable” debt. The IMF insisted sustainable meant 120 per cent of GDP in 2020, but compromised at 124 per cent.


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