It looks as if Greece is going to avert a crisis for now by agreeing in its parliament the austerity and privatisation programme agreed with the EU and IMF. And the Greek vote tomorrow should be sufficient to release the next €12bn tranche of the first bailout so that Greece can, for now at least, avoid default. In his interview on RTE Radio’s This Week programme on Sunday last, the Irish Minister for Finance, Michael Noonan said that he expected Greece would indeed approve the austerity plan but seemed unconvinced that the plan would actually be implemented. But it will be September 2011 when the next review mission from the IMF/EU descends on Athens to examine progress, so the present fudge provides some breathing space to prepare better and in particular make plans to assist Spain.
As for the remainder of the present Greek phase, a second bailout will be required and it seems that private bondholders might contribute to the second bailout by agreeing to roll-over some of the debt that is maturing in the next 12 months; the so-called French model would allow bondholders to “cash out” a portion of the par value of their bond, and re-invest part of the remainder in a 30-year Greek bond and the rest in an EU bond. The full details seem not to be available but what is important is the claim that some French banks will agree to it, and apparently it is French banks that are most exposed to Greek sovereign debt. But even if the private bond initiative were not to work, the betting on here is that the EU would stump up 100% of the second bailout, such seems to be the resolve to avoid a Greek default.
How Greece will cope with 160% debt:GDP and what happens in September 2011 remains to be seen but for now at least the crisis appears to have receded. So ouzos, cognacs and schnapps all round then? Apparently not inIreland.
On Monday last on the under-rated Vincent Browne show, the veteran broadcaster was going through the regular preview of the next day’s newspapers and then from 30:00 into the programme he said “and we start with the Irish Times and it leads with “Government cautious on initiative to help Greece avert default” turmoil drives notional Irish borrowing costs to a new record and the Government has given a cautious welcome to a French initiative to help Greece avert default by extending some of its debts for as long as 30 years. The plan unveiled by President Nicolas Sarkozy is supported by French banks who have the greatest exposure to Greek sovereign debt. I am surprised that the Government is cautious [ly welcome] about this because I understood that that was going to be the way that we were going to get out of our difficulties here ourselves and ah, that doesn’t come from a junior source.”
There had been a perception in Ireland that should Greece seek a managed default now which would have impacted upon European banks then Ireland might have sought parity of treatment and be given approval to haircut bonds owing by Irish banks. Remember Ireland has practically no bank exposure to Greece and is understood to have a perhaps €200m of public/private sector exposure plus €375m which we lent to Greece last year as our contribution to the first Greek bailout; so a Greek default would have a minimal direct impact on Ireland. But a Greek default agreed to by our partners in Europe might have brought €16bn of unguaranteed senior bonds into play for Ireland, bonds which are presently being repaid at par despite the fact that upto €70bn of public funds are being shovelled into the banks.
So Greece’s success (for now) might result in Irish tragedy. I wonder who the non-junior source, to which Vincent Browne referred, was. And I wonder do we have a Plan B?
NAMA Wine Lake 