Athens Macedonian News Agency: News in English, 15-08-17

Athens News Agency: News in English Directory - Previous Article - Next Article

From: The Athens News Agency at <http://www.ana.gr/>

CONTENTS

[01] German FinMin estimated that an agreement will be reached today

[02] Hugo Dixon to ANA-MPA: It is extremely difficult for Greece's other European partners to agree a haircut

[01] German FinMin estimated that an agreement will be reached today

"I believe that we will have a result today" he stated adding "if a solution was not found today then we would have to decide a bridge loan".

[02] Hugo Dixon to ANA-MPA: It is extremely difficult for Greece's other European partners to agree a haircut

Asked if a nominal haircut is necessary, he replied: "I don't think it is necessary. I think it would be desirable because it would be clearer to everybody what would happen with the debt. All of these mathematical adjustments to do with present value, things that sophisticated investors know and understand, are difficult for ordinary citizens to follow. Therefore I think that although it would be preferable to have a haircut, it will be living in the realm of what is achievable and the best of what is achievable is longer time for Greece to pay back its debt and lower interest rates to pay during that period."

Moreover, he said that it would be a good idea if the interest rate that Greece has to pay is fixed rather that fluctuating. "At the moment 1.0 percent interest rate is a very low interest rate, but if in ten years it rose to 5 percent, it would start to be really hurting. Therefore it would be safer if Greece was paying a fixed interest rate rather that a fluctuating one," he underlined.

Dixon also favoured the idea of some of Greece's debt to be linked with the GDP. "This is also a good idea. I do not think it is possible to persuade the creditors to link all the debt to GDP, but maybe a portion of the debt linked to the GDP. And this is also has an attractive feature because it means that if the economy does not perform well, then it is not going to be so much debt repaid. Then on the other hand, if it does perform well, then it can afford to repay its debt. And this idea that Varoufakis was so keen on, I think it is a good idea," he said.

However, he estimated that the current agreement gave Greece up to 40 billion euro debt relief.

"My assumption in calculating this 40 bln debt relief is first that the full 86 billion loan is made. If it is less than 86 billion, it will be less debt relief," he explained adding that the Eurogroup decided to lend Greece up to 86 billion euros.

But, he noted that if the IMF comes in and provides 16 billion of the 86 billion, this will not come with such generous terms as the ESM. And there are two good things, a very long maturity and the low interest rate.

Klaus Regling, the head of the ESM, said after the last Eurogroup that the average repayment period will be 32.5 years, which is a long time, Dixon noted. The next thing he said is that Greece will be paying 1.0 percent on this loan, and this is a low interest rate. "Those are the key points about the loan – 86 billion, 32.5 years and the interest rate that at least starts from 1 percent," he stated.

"Then I looked at the present value of this loan. The level of interest rates clearly gives a sense of what the burden of the loan is. You can see a series of payments you will make in the future and work out what the value of these payments is in today's money by discounting back in the present day these future payments. The point is that if you have 86 billion today is different if you have to pay in the future. The further it is away in the future, the less it is worth today," Dixon explained.

"The process by which you actually convert a sum of money that you owe in the future to its value in today's money is called discounting. The key thing when you are discounting, the most important fact that you have to take into account is the discount rate," he said. "Based on my calculation this is 5.0 percent a year," he added.

However, this is a number that people can argue a lot about, he noted. "But 5.0 percent seems to be a number that other people are using as well in trying to determine what a fair number is for Greece. And if you use that discount rate on the 86 billion euro which is due in 32.5 years and all the interests that will be made this period you then find this 86 billion is in present terms only 45 billion."

The difference between the 45 billion and the 86 billion is therefore 41 billion, he said. So it is as if Greece's being lent 86 billion, but actually the true value is only 45 billion; so you got upfront a 41 billion of debt relief.

Athens News Agency: News in English Directory - Previous Article - Next Article