After months of talks, Greece says it won’t agree to any deal with its creditors that omits a commitment to debt relief.
The two sides are at loggerheads, with the debtor (Greece) claiming it won’t be able to prosper with the current debt load. The creditors (the International Monetary Fund, European Central Bank and euro-area member-states) on the other hand, would still like to get repaid. Greece’s total public debt stood at 313 billion euros ($356 billion) at the end of the first quarter.
Here are some answers to frequently asked questions.
What does Greece want?
A deal that includes a “restructuring of the public debt in order to put an end to the vicious circle of the past five years during which the country had to continuously receive new loans to repay the previous ones.”
Like asking my credit card company to erase my balance?
Not necessarily. Greece has offered alternatives, including indexing repayments to growth, a temporary moratorium, and a debt swap.
What do creditors say?
After two rounds of debt relief in 2012, creditors said they would consider, if necessary, easier repayment terms on bailout loans, including cutting interest rates. The offer was conditional on Greece meeting certain conditions, including maintaining a budget surplus before interest payments.
Can Greece ask for more?
Creditors have said that more relief isn’t on the table before Greece complies with the terms attached to its emergency loans. They say that the most immediate priority is that Greece meets the conditions of the next bailout tranche disbursement to avoid default.
Why won’t the creditors cave?
While a concrete commitment to debt relief from the creditors would make it easier for Greece to approve a new agreement with austerity measures, the creditors have their own taxpayers to answer to.
Who is owed the most?
The European Financial Stability Facility, the euro area’s original crisis-fighting fund, which has lent the country 130.9 billion euros, is Greece’s biggest creditor.
Member states of the currency bloc are on the hook for 52.9 billion euros. Greece also owes the IMF about 20 billion euros.
Isn’t the ECB involved, too?
The ECB and the currency bloc’s national central banks are a special case. Together, they hold about 27 billion euros in Greek government bonds. In addition, they support Greek banks with 118 billion euros of liquidity, which isn’t currently included in Greek debt figures.
How much is owed other investors?
After a restructuring and a debt-buyback in 2012, private investors hold less than 40 billion euros in Greek bonds.
How onerous are the EFSF payments?
The interest it pays is about the same as the EFSF pays, and therefore similar to what a AAA-rated country would pay. Greece also doesn’t have to pay principal until 2023 and has an interest deferral. The average maturity of EFSF loans to Greece is about 31 years, with the last payment due in 2053, according to the EFSF’s website.
What about IMF loans?
The bulk of amortization payments that Greece has to make until 2019 are for IMF loans, which in principle can’t be restructured. The interest paid isn’t fixed, and depends on the amount outstanding and the length of time since the money was advanced. The average rate varies from about 3 percent to 4 percent.
OK then, what’s going to happen?
Both sides are engaged in what some have likened to a game of chicken and it’s unclear who will blink first. There could also be another way out. IMF chief economist Olivier Blanchard (yes, he’s a creditor) on June 14 suggested a compromise:
Greece could be asked to offer credible measures to reach the lower target budget surplus and “show its commitment” to a more limited set of reforms.
In exchange, the creditors would “agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability.”
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- Greek Default for Dummies