Greek bailout of EUR130 billion agreed

EU Finance ministers have just signed off on the bail out package for Greece.

The “voluntary” losses taken by the private bond holders will now be larger than what was agreed to the previous month. The haircut that was “agreed” to will now be 53.5%.

The IMF believes that this will be sufficient to reduce Greece’s debt to GDP ratio, currently sitting at 180%, to 120.5% by 2020. This is despite modelling that was delivered in a confidential paper earlier this week whereby it was stated that by 2020 their debt to GDP ratio would only fall to 160%. Alongside this, the paper’s downside scenario entailed that Greece will in fact require EUR245 billion of bailout money, rather than the EUR 130 billion that has just been agreed to.

The issue here remains that the austerity package will hinder growth in Greece’s nascent (if ever) recovery, with the outcome of therefore perpetually causing international investors to shun the Greek bond market permanently.

Baseline scenarios that the IMF has used as the basis to sign off on this current bailout package delivered this afternoon is predicated on the fact that Greece’s economy experiences positive GDP growth in 2013 and achieves a minimum of 2.3% GDP growth in 2014.

We continue to monitor Portuguese bonds, the 10 years currently sitting at 12.5%.