Greece bailed out

[jimmy olsen]

I wonder how long it will take the Greeks to burn through that money and be back in the same situation?

EDIT: UPDATE
http://www.businessweek.com/news/2010-04-11/greece-wins-eu45-billion-pledge-to-blunt-crisis-shore-up-euro.html

Greece Wins EU45 Billion Aid Pledge to Blunt Crisis (Update1)
April 11, 2010, 6:50 PM EDT
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(Updates currency in fifth paragraph. For more on the Greek crisis, see {EXT3 <GO>}.)

By James G. Neuger and Jonathan Stearns

April 12 (Bloomberg) -- European governments offered debt- plagued Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates in a bid to stem its fiscal crisis and restore confidence in the euro.

Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said yesterday they would offer as much as 30 billion euros in three-year loans in 2010 at around 5 percent. That's less than the current three- year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the International Monetary Fund.

"This is a huge amount," said Stephen Jen, managing director at BlueGold Capital Management LLP in London and a former IMF economist. "This is more than a bazooka. They have gone nuclear on the issue of Greece. In the short run the market is short Greek assets so we'll get a rally in those."

With the euro facing the stiffest test since its debut in 1999, the 16-nation bloc maneuvered around rules barring the bailout of debt-stricken countries, aiming to prevent Greece's financial plight from spreading and to mute concerns about the currency's viability. Germany also abandoned an earlier demand that Greece pay market rates.

No Aid Request

The euro has dropped 5.7 percent against the dollar this year as the discord within Europe over the response to the Greek crisis sapped faith in Europe's economic management. The single currency rose 0.9 percent to $1.3617 as of 7:06 a.m. in Tokyo after jumping 1 percent on April 9.

Bond investors' response will determine whether Greece needs to tap the aid, a Greek Finance Ministry official said in Athens yesterday. Finance Minister George Papaconstantinou said the government plans to go ahead with debt sales, including a dollar-denominated bond, without taking up the offer for aid.

The package "sends a clear message that nobody can play with our common currency and our common fate," Greek Prime Minister George Papandreou told reporters in Larnaca, Cyprus.

Yesterday's teleconference of euro-region officials, which included European Central Bank President Jean-Claude Trichet, left open just how much Greece might need in 2011 and 2012, the final years covered by the package.

"It shows there is money behind this," Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels yesterday after chairing the conference call. "The initiative for activating the mechanism rests with the Greek government."

IMF Loan

Europe's contribution would represent about two thirds of any aid, with the IMF chipping in the rest, European Union Economic and Monetary Commissioner Olli Rehn said.

"We cannot speak on behalf of the IMF, but we know that they are ready to cooperate and contribute with a substantial amount," Rehn said. Greek, EU and IMF officials will meet today to start working on details.

The IMF was "ready to join the effort," Managing Director Dominique Strauss-Kahn said an in e-mailed statement, without giving more details on the IMF contribution.

European rhetorical support in February and March failed to prevent Greek 10-year bond yields from soaring to 7.51 percent on April 8, according to Bloomberg generic prices, amid concern that Papandreou's government will be swamped by its bills.

The jump in Greek yields to the highest since December 1998 helped overcome resistance to an aid package in Germany, which as Europe's biggest economy would contribute almost a third of the loans, the largest single share.

Germany Backs Down

Germany "has lost the competition," said Carsten Brzeski, an economist at ING Group in Brussels who used to work at the European Commission. "All that fuss and talk about not putting taxpayer money at risk has been made obsolete."

The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points April 8, easing to 398 basis points the next day as speculation over a rescue gained steam.

In the compromise hammered out yesterday, the European loans would be tied to Euribor and priced above rates charged by the IMF, a nod to German opposition to subsidizing a country that lived beyond its means. The EU will offer a mix of fixed- rate and floating rate loans.

The IMF would charge less than the EU. Both types of funding would be offered at the same time, Rehn said. Transfers to Greece would be made by the ECB.

Greece last week raised its estimate of the 2009 deficit from 12.7 percent of gross domestic product to 12.9 percent, the highest in the euro's history and more than four times the EU's 3 percent limit.

Deficit Limits

While rules dictated by Germany in the 1990s foresee fines for countries that go over the limit, no penalty has ever been imposed. Germany also led the charge to loosen the rules in 2005 after three years of excessive deficits.

While all euro-region governments vowed to contribute, some would need parliamentary approval. Ireland, itself reeling from the financial crisis, would require "national legislation," Finance Minister Brian Lenihan said in an e-mailed statement.

The Greek government has yet to request a European lifeline, confident that this year's planned budget cut of 4 percentage points will stem speculation that it is heading for the euro region's first-ever default. Fitch Ratings highlighted that risk by shaving Greece's debt rating to BBB-, one level above junk, on April 9.

A combination of higher taxes, lower spending and salary cuts for public workers have prompted strikes and protests against Papandreou, a socialist elected in October on promises of raising wages.

Maturing Debt

The EU showed no sign of demanding further Greek austerity measures. Rehn hailed the Greek government for implementing "a very bold and ambitious program."

Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year's deficit.

The debt agency plans to offer 1.2 billion euros of six- month and one-year notes tomorrow, in a test of investor confidence.

Greece is likely to need money by the end of April, said Erik Nielsen, London-based chief European economist at Goldman Sachs Group Inc. Noting that the budget cuts threaten to cripple the economy, he said in a research note that "this thing is unlikely to go to bed anytime soon."

--With assistance from Meera Louis and John Martens in Brussels, Maria Petrakis in Athens, Simon Kennedy in Paris, Stelios Orphanides in Nicosia, and Alan Crawford and Brian Parkin in Berlin. Editors: Andrew Davis, Ben Livesey

To contact the reporters on this story: James G. Neuger in Brussels at [email protected]; Jonathan Stearns in Brussels at [email protected];

To contact the editor responsible for this story: James Hertling at [email protected]

[HisMajestyBOB]

Europe

[Agelastus]

The EU showed no sign of demanding further Greek austerity measures. Rehn hailed the Greek government for implementing "a very bold and ambitious program."

No point. They probably won't be able to implement the measures they have already announced.

Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year's deficit.

So - basically Europe and the IMF will be financing Greece's deficit for around a year, roughly, if, as seems likely, this package is needed. What then?

[Neil]

What other choice did Germany have?  We all know that all that 'tough love' talk was a bunch of horseshit.  Until the EU breaks up, the well-organized, wealthy states will continue to bankroll the countries that never made it out of the 70s.

[jimmy olsen]

The EU showed no sign of demanding further Greek austerity measures. Rehn hailed the Greek government for implementing "a very bold and ambitious program."

No point. They probably won't be able to implement the measures they have already announced.

Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year's deficit.

So - basically Europe and the IMF will be financing Greece's deficit for around a year, roughly, if, as seems likely, this package is needed. What then?

Greek army marches on Istanbul.

[Caliga]

The money will be delivered to Athens in a hollow wooden horse.

[Razgovory]

Maybe we can convince the Europeans to bailout California.

[HisMajestyBOB]

The EU showed no sign of demanding further Greek austerity measures. Rehn hailed the Greek government for implementing "a very bold and ambitious program."

No point. They probably won't be able to implement the measures they have already announced.

Greece needs to raise 11.6 billion euros by the end of May to cover maturing bonds, and another 20 billion euros by the end of the year to pay debt coupons and finance this year's deficit.

So - basically Europe and the IMF will be financing Greece's deficit for around a year, roughly, if, as seems likely, this package is needed. What then?

Greek army marches on Istanbul.

Better to have the Turkish army march on Athens. It'd solve all those problems Greece is at the heart of - their debt crisis, Cyprus, Macedonia.

[Agelastus]

I don't think our continental brethren are that stupid.

edit: this is a response to Raz, of course...bloody speed posters...

[Sheilbh]

That's an absurdly over-the-top and inaccurate title Tim.  Greece hasn't been bailed out and nowhere in the article does it say they have.

I mean they may need bailing out at some point very soon but it's not actually happened.

[Zanza]

They get a credit line at an interest rate that is still considerably higher than what any other country has to pay at the markets right now. Not a particularly generous bailout.
Seems like a good compromise though. It gives the Greeks time to fix the situation, but it does give the other countries a risk premium - not as high as the market, but still.

[Admiral Yi]

What other choice did Germany have?

Let Greece default.

[Zanza]

Let Greece default.

That would probably have required very expensive bank bailouts, so it would not have been cheaper. When Lehman was allowed to go bankrupt that was in hindsight not such a brilliant idea.
And the damage it would do to the idea of European integration and solidarity not to help the Greeks in some way would be immeasurable.

[Admiral Yi]

That would probably have required very expensive bank bailouts, so it would not have been cheaper. When Lehman was allowed to go bankrupt that was in hindsight not such a brilliant idea.
And the damage it would do to the idea of European integration and solidarity not to help the Greeks in some way would be immeasurable.

Do you know that some (European) banks have heavy exposure to Greek debt--enough to sink them--or is that speculation?

This is the first I've heard of the concept of European solidarity.

[Neil]

And the damage it would do to the idea of European integration and solidarity not to help the Greeks in some way would be immeasurable.

This.  The EU is a pretty popular idea with a lot of the citizens of those wealthy countries.