THE TAKEAWAY: Eurgroup leaders decide Greek aid package > Greece must meet terms before receiving aid > EURUSD little changed
The Euro was little moved as Eurogroup members reached a contingent solution on Greece’s fiscal sustainability measures. The Eurogroup stated during their press conference today that Greek uncertainty has been relieved and complimented the Greek government for their strong commitment towards achieving a sustainable path. According to the written statement released today, Greek aid “contingencies” would provide that the debt servicing account must continue to strengthen as in Greece must continue to deposit surpluses effectively growing the account, yet at the same time this task appears to have become more difficult as the statement also recognized the “deterioration” to the economy which may imply that uncertainties may exist. The statement also said Greece is considering retiring some of their outstanding sovereign debt while also stating “after having been reassured of the (Greek) authorities' resolve to carry the fiscal and structural reform momentum forward and with a positive outcome of the possible debt buy-back operation, the euro area Member States would be prepared to consider the following initiatives:”. Moreover, Eurogroup leaders said the “Greek (debt) buyback must be done” before aid payments are received which further implies that a Greek “consideration” to retire debt must turn into an absolute in order to satisfy the conditions.
If conditions are met, then it’s likely that interest rates on outstanding Loan Facility credit may be reduced by 1 percent while the maturity dates could be pushed back on EFSF loans by 15 years and interest rates attached to EFSF maturities may also be pushed back by 10 years. Also Greece may receive kickbacks from member states from profits earned on the Securities Market Program. The Eurogroup would consider further measures, like lowering borrowing costs even more, if Debt to GDP ratios of 175%, 124% and 110% are met by 2016, 2020, and 2022 respectively.
Assuming all minimum requirements are met, the ESFS would issue Greece 43.7 billion euros of which 10.6 billion slated for budgetary financing, 23.8 billion for bank financing and the rest in three installments.
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