EU Official: Greece Needs Extra $20 Billion to Stay Afloat
- Posted on February 2, 2012 at 7:00pm by
Tiffany Gabbay
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BRUSSELS (The Blaze/AP) — Greece needs about an extra euro15 billion ($20 billion) to get its debt down to manageable levels – and the rest of 17-country eurozone is being asked to help foot the bill.
Debt-ridden Greece is close to a deal with private investors to reduce its debt burden by about euro100 billion and that – plus an agreement to enact deep spending cuts – could pave the way for a euro130 billion bailout from its European partners and the International Monetary Fund. But on Thursday a European Union official said this plan was not enough to help fix Greece’s problems, which are getting worse as the effects of the recession take hold.
In order to bring Greece’s debt burden to a sustainable level – 120 per cent of its economic output in eight years’ time – the country’s international debt inspectors calculate that Greece needs an additional euro15 billion – a shortfall it believes should be made up by the rest of the 17-country eurozone, the European official. The official spoke on condition of anonymity because of the sensitivity of the matter
The extra money, in theory, could come either from the other euro countries or by having the European Central bank, its national counterparts and state-owned banks like France’s Caisse de Depots taking a loss on their Greek bond holdings, the official said. Analysts estimate that the European Central Bank holds euro50 billion to euro55 billion in Greek bonds by face value but it can’t simply write them down without breaking the EU treaty, which prohibits the bank from financing governments. Writing off a debt would be, in effect, transferring money directly to a government.
The new push for Greece’s public and government creditors to take a cut on their investments – dubbed the official sector involvement, or OSI – is a new front in the battle to save the country from a potentially devastating default. So far the eurozone and the International Monetary Fund have given billions in bailout loans to the struggling country, but they haven’t been asked to take losses.
It is also an acknowledgment that Greece‘s economy is in such a dire state that the country’s debt inspectors – the so-called troika of the Commission, the European Central Bank and the IMF – are having a hard time finding more ways in which Athens can save money.
Greece has been at the heart of Europe’s debt crisis since it revealed in 2009 that its debt was far larger than its official estimates. It piled on the debt during a decade in which the government overspent and its economy was growing. Those fortunes turned when the world went into recession in 2008.
The challenge now is reducing the debt at a time when the economy is shrinking. Spending cuts, tax increases and the general uncertainty of the crisis have already pushed Greece into a deep recession, which in turn has eliminated many of the gains from the austerity measures.
Asking private creditors like banks and investment funds to share the burden of saving Greece was the first reaction to this problem; getting the public sector creditors involved is the next.
The official said a deal with private creditors to take losses on their holdings will have to be announced before the end of the week to make sure it can be implemented before Athens has to pay back euro14.5 billion in bonds on March 20.
Experts from national finance ministries will examine the details of the deal on the so-called private sector involvement – or PSI – on Friday, and will likely also discuss how the euro15 billion gap can be closed, the official said.
People familiar with the tentative deal have said it would see investors take losses of more than 70 percent of their holdings. On top of having to accept a 50 percent cut in the face value of their bonds, investors will also receive lower interest rates of between 3.5 per cent and 4.5 per cent and give Greece 30 years to pay back the debt.
If agreed, the deal would end negotiations with bondholders that started this summer and have become increasingly tenuous in recent weeks.
Getting public creditors like central banks or sovereign wealth funds to take a hit may be even more controversial, since any losses or foregone profits ultimately come out of taxpayers’ pockets. Germany, the strongest economy in the eurozone, is also one of the strongest opponents of OSI.
Germany’s finance minister, Wolfgang Schaeuble, said on n-tv television Thursday that he didn’t see the need for “any extra contributions from the public sector; we’re carrying everything anyway.”
Schaeuble didn’t address the issue of the euro15 billion funding gap.
The majority of the ECB’s Greek bonds were bought at a discount in the summer of 2010, when the central bank was trying to stabilize their prices. Even though it is bound by the rules of the EU treaty, it could find a way to give up the substantial profit it would earn by holding the bonds to maturity. It could do that by selling the bonds to the eurozone bailout fund or to Greece at the knockdown prices it bought them for.
However, the ECB has so far given no indication that it is willing to do so, with some of its governing board members saying that giving up on profits would clash with the bank’s ban.
Alternatively, eurozone states could boost their bailout loans beyond the promised euro130 billion, or provide some, more-limited, relief by further lowering interest rates on these loans.
Analyst Carsten Brzeski at ING in Brussels said the ECB and President Mario Draghi might be open to giving up the profits on the bonds. But the bank will wait to take action so it does not appear to be acting at the request of politicians.
The bank is legally independent and the EU treaty forbids it to take instructions from government officials.
“I think Draghi could live with it, but they will not bow very easily,” said Brzeski. “It has to look like it is their own idea, their own initiative.”
While officials have stressed the need for Greece’s financing to be set before the bailout goes through, the main players have been flexible before and “it’s not as hardball as it looks.”
On the official side, “someone will have to bite the bullet, or everyone,” he said. European officials are trying “to have everyone take part in the burden sharing and thereby get the ECB involved.”
The euro130 billion second bailout package also still depends on labor market reforms that the EU and IMF are asking Greece to implement. Unions and employers resumed talks on Thursday over troika demands to lower wage costs in the private sector and possibly lower the minimum wage.
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Comments (39)
Truthbeliever2
Posted on February 3, 2012 at 3:41pmI would just let Greece starve to death. I would not enjoy or regret it; it’s just something I would do.
Report Post »Secret Squirrel
Posted on February 3, 2012 at 3:58pm.
Report Post »“We‘ll pay it back in Gyro’s and olives, I promise.”
gr8t2bfree
Posted on February 3, 2012 at 10:29amNo I see where num*nuts got his brains
Report Post »zman61
Posted on February 3, 2012 at 9:04amtime for Greece to take their medicine. If I don’t pay the note on my vehicle the bank will come and get it. I f I don’t pay the house note the bank will boot me to the curb. No one is “biting the bullet ” to come and bail me out. So F em!!!, let em sink. it’s not my fault that they took the socialist pill. let em sink!!!! Every day in my own country I have to watch people that never hit a lick , that’s work in case you were wondering, get their housing paid for b the government, their food and transportation and even their cell phones now, paid for by the government. That means that I and every other person that actually pays taxes is paying for them to sit on their collective azzez while I become their slave. I have to work to support them. I am fed up with it and I say F em all!!!!!! including the one that gives it to em, the communist in the White House. I’d like to ask that B2st@rd on national TV in front of everyone, where he can’t dodge the question, why I should have to pay to take care of somone that will not work and teaches their children to live off the system. He doesn’t have the balls to answer that question in front of a nationwide audience..that’s an official challenge to the Communist in the White House. Were are the next Greece. We now have as many people living off the government as we do paying in. We either drag some of them back to the right side or we go over the cliff with Greece..Step up Dear Leader you coward. Answer the question for ever
Report Post »zman61
Posted on February 3, 2012 at 9:17amfor everyone
Report Post »Ruler4You
Posted on February 3, 2012 at 10:52amHey, no worthless person left behind, right?
But don’t forget the communist mantra: “we all have individual self worth” until we don’t. And then it’s the death panel.
Report Post »LJK622
Posted on February 3, 2012 at 8:48am20 Billion is nothing. Why don‘t we just buy Greece and Italy why we’re at it. Get it while it’s cheep. States 51 & 52 anyone?
Report Post »robstoddard
Posted on February 3, 2012 at 8:19amWhy kick the can down the road? If Greek collapse causes a global collapse, let it happen now and not later, when the results will be much worse.
Report Post »Living In NYC
Posted on February 3, 2012 at 7:36amSo I am going to have to work till I am 80 to pay for Greece’s freeloaders…NOT!
It is time for Greece to pay their master (debt) with their own sweat and toil!
Report Post »smithclar3nc3
Posted on February 3, 2012 at 8:16amExactly, This global ponzi scheme has to stop the IMF and the U.N need to be abandoned an economy of self responsibility needs to be establish let those can do and those who can’t fail. They’ll learn a lesson restructure and in the end build stronger economies.
Report Post »Ivan in Phoenix
Posted on February 3, 2012 at 2:51amGreeks used to be tough but now they are acting like a bunch of spoiled children. Time to sack up and start working hard and paying their own way. Their own government needs to cut benefits back to where it was 20 years ago and tell them it will happen in 90 days and to get ready.
Report Post »TXPilot
Posted on February 3, 2012 at 2:55amAnyone out there feel like buying a bunch of Euros?….oh, I forgot, thanks to Obama and his minions, we already have.
Report Post »HumbleMan
Posted on February 3, 2012 at 4:05amI agree … let them fail. Experience of failure is essential to understanding success.
Report Post »ALL4FREEDOM
Posted on February 3, 2012 at 12:50am{CLINK!} That’s the sound of the first domino falling. This problem cannot be papered over by printing more money! Greece will default, followed by Italy (their largest bank is insolvent). Germany WILL NOT continue covering the bet. Ron Paul is right about one thing: we’ve got to have sound money before the world stops accepting the dollar as the reserve currency. What America needs is a good five-cent nickel! And think about this: what happens to us when interest rates (now next to zero) inevitably rise on our $16 trillion debt? The idiots in Congress just raised the debt limit AGAIN! Stop the damned spending!!!!!!
Report Post »discus02
Posted on February 3, 2012 at 12:45amThe entitlement society at its worst. Wake up cut the money now and let them rebuild their own economy.
Report Post »This_Individual
Posted on February 3, 2012 at 12:38amWhat happened to our investment?
Report Post »REPUB1
Posted on February 3, 2012 at 12:38amGLUB GLUB GLUB ….. hear that we are sinking right along side of them, dont give 20Billion give em a little extra to tide them over dont get cheap now… give to save the sheep there…. bend over america
Report Post »The-Monk
Posted on February 3, 2012 at 12:25amNo! No No No No No No No No No and NO! No way! No how! Just plain no and fancy no! NO! Do not send any more of our taxes to Greece! No, not, nada, never, ever! NO! Do I make myself clear?
Report Post »McNamara
Posted on February 3, 2012 at 12:15amThat’s a lot of cash. On top of the 130B (yes billion with a B) for that little country. That is asinine.
Report Post »cosmic dogma
Posted on February 2, 2012 at 11:34pmWhat is really going to happen when this house of cards tumbles? What happens? We are heading towards that same destination, Crazy, house of cards,Town.
Report Post »TXPilot
Posted on February 3, 2012 at 12:16amThe Titanic is going down, the band is playing, and the passengers are asking for one additional bucket to bail with………I think we can all see how this isn’t going to end well.
Report Post »Ivan in Phoenix
Posted on February 3, 2012 at 3:00amThere are 3 or 4 other EU member countries that are nearly as bad off as Greece. What will the EU do when they start asking for their ‘fair share’ of the bailout money? What if there‘s isn’t any money left after Greece gets what they can out of the EU? Bad things are coming.
Report Post »soybomb315
Posted on February 2, 2012 at 11:04pmCongress better start passing laws preventing our government and the federal reserve from bailing out europe. You know they want to do it.
If our broke government decides to send them money – i am going to lose my mind
Report Post »Jim213
Posted on February 3, 2012 at 12:32amKeep your mind and get a gun !
Report Post »Jim213
Posted on February 3, 2012 at 12:34amKeep your mind and buy a gun !
Report Post »MatthewChapter24
Posted on February 2, 2012 at 10:27pm“Germany, the strongest economy in the eurozone, is also one of the strongest opponents of OSI.”
LOL–of course they oppose it. Why would you want to keep bailing out others when you work hard to be successful and they are just sitting on their butt eating feta cheese?
Report Post »SHOWMESTATEGUY
Posted on February 2, 2012 at 10:13pmGreece is a country of about eight million people. How many Billions of relief have they already received? My goodness, eight million people need how many Billions to get by on? It would have been cheaper to write each one of the eight million a check the first time and told them that’s all folks, make it work or sorry.
Do you think you could pick a “three hundred” out of the eight million Greeks today?
Report Post »adf1969
Posted on February 3, 2012 at 3:14pmInteresting thought.
Report Post »Greece actually has about 11M people. If you take the $130B that’s $11,818 PER PERSON this bail-out has cost.
If we had to “bail-out” the US (with 300M population), it would cost $3.5T for the same level of “bail-out.”
SilentReader
Posted on February 2, 2012 at 10:02pmThe Nazi and fascist-founded EU is a sinking ship. Let the monstrosity sink under it’s own agregious ineptitude and contemptible aggression that has resulted in at least 28 nation states having no elected governments and no constitutions and Italy being taken over by an unelected and installed EU bureaucrat.
I’d like to see both the UN and the EU and NATO enforcer and the HAGUE and their global manipulators put out of business for good. And then tried and convicted of all their crimes against all humanity. As disgusting a bunch of evil-doers as I’ve ever seen. Global governance with impunity where the 20th Century will be known as the Century of Genocide with their total collaboration.
I hold all these global institutions and their manipulators in utter contempt.
It is why our Founders had the foresight to establish a limited government with limited powers, with checks and balances, because all big government leads to tyranny and all tyranny leads to death by government. There is no exception in all of the history of mankind.
NO MORE BAILOUTS AT OUR TAXPAYER EXPENSE! Is anyone listening? Because the time of reckoning is here, and now!
Report Post »Walkabout
Posted on February 2, 2012 at 9:54pmGreece needs more than 20 billion. It needs whatever the mob says it needs. If they want to retire in their 50s, then it is someone else’s responsibility to get get the money.
Greek bond investors will take a haircut as the financial people say up to 70 or 80%. Whenever the government says cuts people take to the streets. I can’t see cuts happening. University students will riot egged on by know nothing profs. The socialist, communists & anarchists will riot.
Report Post »BlackCrow
Posted on February 2, 2012 at 9:53pm20 billion just chump change. Ol’ uncle Ben will just give the order to some clerk in the New York Fed and a few keystroks later Vola! brand new money! And we will be on the hook.
Report Post »Windsong
Posted on February 2, 2012 at 9:46pmI disagree. Greece made it’s choice. It is a country filled with incividuals that seem fully prepared to reliquish their sovereignty for free ‘stuff’ from whomever their government ruler is. Greece is the posterchild of what no other country wants to become…dependent, helpless and a willingness to give eradicate their nation from history. Perhaps George can claim this as his fifth economic overturn and call it Sorosville. He and his EU friends can begin their purging and starving there, leaving only ‘intellectuals’ on the island.
Report Post »SHOWMESTATEGUY
Posted on February 2, 2012 at 9:45pmCan somebody tell me what is so great about Europe that BO seems determined to transform America into? Who will bail out the good old USA after the dem libs make us like Europe? Europe? Don’t think so. China? Don’t think so. Who?
If you are a dem lib and you read this please tell me who.
Report Post »SychinLegacy
Posted on February 2, 2012 at 9:13pmI can hear it now….TOO BIG TO FAIL!!!!
Report Post »disenlightened
Posted on February 2, 2012 at 8:58pmType your favorite Greek joke here ____________________________.
Report Post »Rodster
Posted on February 2, 2012 at 11:19pmGreece where the men are men and the sheep are scared
Report Post »sb36695
Posted on February 2, 2012 at 8:50pmJust raise taxes! hahahaha
Report Post »