Eurozone officials think of new ways to cut Greek debt mountain
Euro zone officials are considering new ways to reduce Greece’s huge debt because delays in reforms by Athens and continued recession have put the target of 120 percent debt to GDP ratio in 2020 out of reach. A Greek debt sustainability analysis prepared by the International Monetary Fund, the European Central Bank and the European Commission in March, forecast Greek debt would rise to 164 percent of GDP in 2013 from around 160 percent in 2012 under a baseline scenario, assuming the Greek economy stopped contracting next year.
But Greece now expects its economy to shrink for the sixth year running in 2013, eyeing a 3.8 percent contraction that would boost its debt ratio to 179.3 percent. “At the moment it looks like Greece’s debt level will rise to well above the target of 120 percent of GDP by 2020,” indicated ECB Executive Board member Joerg Asmussen. He added that in order to bring Greece debt level to the desired level in 2020, they could organise voluntary buy-backs of its bonds. “One has to consider elements that could make it possible to achieve that goal. The money could not come from the ECB, but it could be lent by the European Stability Mechanism, for example”, one senior euro zone official said. Because Greek bonds trade at very deep discounts, one euro of money borrowed from the ESM, the euro zone’s permanent bailout fund, could reduce Greek debt by 1.5 euros, offering good leverage.
Apart from fretting over the never-ending sovereign crisis in the Eurozone, market participants will get to digest a slew of macro-economic releases, as well as the minutes from the most recent monetary policy meeting. The minutes will be crucial in assessing scope for more QE, especially as the current APF is due to expire soon and there is a risk that the MPC may refrain from expanding the program, citing potentially sticky inflation or even an expected rebound post the Olympics and other events that hampered UK growth earlier in the year. Key support and resistance remain unchanged. Outcome Neutral.
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