Forex Flash: Details of the Eurogroup deal with Greece – Merrill Lynch

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FXstreet.com (Barcelona) - Merrill Lynch analysts explained the Eurogroup deal with Greece that aims at reducing the debt to GDP ratio from a prior forecast of 194% in 2013, to 175% by 2016, 124% by 2020, and substantially below 110% by 2022. "In the absence of GDP growth and primary balance projections, we cannot assess the contribution of each component of the agreement to the debt/GDP reduction. But we can assess in Euro terms the potential relief provided by some of the measures", they wrote, pointing to 1) Greek debt buybacks; 2) the return of income from SMP in 2013; 3) reduction of interest paid by Greece on the bilateral loans agreed in May 2010, by 100bps; 4) extension of EFSF loans by 15 years, and a ten year deferral of interest; 5) lowering by 10bps of the guarantee fee costs paid by Greece for the EFSF loans payments to EFSF.

The Greek debt buybacks would reduce the debt load by €18B, assuming Greece uses €10bn to purchase PSI bonds across the strip, at a weighted average price of 28cts. About the Securities Market Programme ( SMP ) in 2013, it is unclear how many additional funds would be transferred, but last time checked it was at €4.1B over 2012-2020. The reduction of interest paid by Greece on the bilateral loans agreed in May 2010, by 100bps, should save a total of €4.2B of interest over Dec12-Dec20. About the extension of EFSF loans, "the interest deferral on its own would cumulate to €44bn over the next ten years, helping therefore to bridge part of the funding gap that had been unveiled for 2012-2016. Ultimately, this would only reduce debt/GDP to the extend market financing costs for Greece are deemed", they wrote, adding that lowering by 10bps of the guarantee fee costs paid by Greece for the EFSF loans would reduce the debt/GDP in 0.5ppt by 2020.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

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