This post was written by Seamus Coffey
The statement from last night’s Eurogroup meeting is here.
The specific measures to be introduced now will attract some attention.
- A lowering by 100bps in the interest rates on the Greek Loan Facility.
- A lowering by 10bps in the guarantee paid by Greece for EFSF loans.
- Term extension and interest deferral on EFSF loans
- Recycling of SMP profits back to Greece.
Some assistance will also be provided to allow Greece to undertake some form of debt buyback. More significant is the provision that:
Euro area Member States will consider further measures and assistance,…,in order to ensure that by the end of the IMF programme in 2016, Greece can reach a debt-to-GDP ratio in that year of 175% and in 2020 of 124% of GDP, and in 2022 a debt-to-GDP ratio substantially lower than 110%
The measures announced last night are, on their own, unlikely to push Greek debt down to 124% of GDP by 2020. Even if the primary surplus set out as being a condition for the above commitment is achieved, the necessary nominal growth rates to reduce the debt ratio to the revised targets may not.
Further measures will be necessary to ensure Greek debt sustainability, but the announced intention to do so means the odds on a Grexit will be lower after last night.