Greece Needs $120 Billion, Double the EU-IMF Bailout Offer, Barclays Says

Greece may need 90 billion euros ($120 billion) in loans to help it overcome its debt crisis, twice what’s on offer from the European Union and the International Monetary Fund, according to Barclays Plc.

The EU-led plan for a 45 billion-euro package will only cover the nation’s financing requirements for the first year, Barclays said. The lenders should not demand repayment before the end of 2014, the bank said.

“Greece’s solvency challenge remains formidable,” London- based analysts Piero Ghezzi and Christian Keller wrote in a research note today. “A multi-year package of 90 billion euros could provide Greece the breathing space to implement the fiscal adjustment. As the contagion risk of debt restructuring at this point could be significant, it is irrational for the EU and the IMF to push Greece into any restructuring early.”

Greece’s plan to cut billions of euros in spending combined with the EU bailout package haven’t yet managed to quell market unrest over a deficit that’s more than four times the EU’s 3 percent limit. Prime Minister George Papandreou officially asked for financial assistance at the end of last week.

Dominique Strauss-Kahn, the IMF’s managing director, said talks will end “in time to meet Greece’s needs.” Greece has 8.5 billion euros of bonds maturing May 19.

The Greek two-year yield climbed 284 basis points to 13.77 percent as of 2:30 p.m. in London, after earlier advancing above 14.6 percent, the highest since at least 1998.

‘Marathon not Sprint’

It’s still “very risky” to hold Greek bonds, although the package may help the nation finance debt without having to go to the market to raise money this year, the Barclays analysts said.

“The Greek debt problem remains a marathon and not a sprint,” said Ghezzi and Keller. “The uncertainty remains high.”

Investors demand an extra 625 basis points in yield to buy Greece’s 10-year bonds rather than German bunds, compared with 559 basis points yesterday as German Chancellor Angela Merkel said today Greece needs to show its budget is on a “sustainable” path. She added a full German agreement to bailout may take “a few days.”

Greek bonds were the worst performers in the region this year, handing investors a loss of 12.6 percent compared with a gain of 3.2 percent from Germany, according to Bloomberg/EFFAS indexes.

To contact the reporter on this story: Anchalee Worrachate at aworrachate@bloomberg.net

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