Finding a Greece solution

Greece’s sovereign and multilateral creditors should cut the interest rate they are charging as part of any reworked bailout plan, according to one of the lead negotiators of the 2011 and 2012 debt restructuring with private sector creditors.
Nanjing Night Net

Charles Dallara, who as managing director of the Institute of International Finance represented banks, hedge funds, insurers and asset managers holding about €200 billion in Greek bonds, said both the International Monetary Fund and European Union governments could offer concessional rates of around 2 per cent to give the country more breathing space.

This compares to around 3.5 or 4 per cent currently being charged.

“The IMF has this rather anachronistic policy that says that if you’re a low-income country, they’ll give you concessional levels,” he said.

“But if you’re a high income country, regardless of the depth of your problems, they will charge you near-market rates.

“I think the IMF needs to revisit its interest rates policy and create some eligibility for countries like Greece for the concessional lending pools,” Mr Dallara said.

Speaking in Sydney during an investment seminar this week, Mr Dallara said he was confident Greece and the EU would reach a compromise deal on the terms and conditions of the some €170 billion extended to the country in recent years to shore up its banking system and allow the government to function.

In return, Greece has agreed to a range of austerity measures aimed at keeping the ratio of public debt to gross domestic product at 120 per cent.

However, popular unrest over the repercussions of fiscal tightening led to the election in January this year of the anti-austerity Syriza party, and the appointment of academic Yanis Varoufakis, a former Sydney University lecturer, as finance minister.

Mr Varoufakis is leading current negotiations with creditors over a restructured deal, including an extension on some of the repayments due this year and lighter austerity conditions.

Despite current posturing and disagreement between the two sides, observers expect them to strike a deal.

“The Greeks don’t have to make such a huge issue out of extending the current program, because they can say to the people that a technical extension is not affirmation of the content of the program, it’s actually quite the reverse; it’s an opportunity to revisit the content of the program,” said Mr Dallara.

“The Europeans, when they get off their high horse saying ‘a deal is a deal and an agreement is an agreement’, will also recognise that the program needs some reworking.

“Once you get past this issue of extending the current program or not, then the actual adjustments to the program should not be insurmountable,” he said.

“I think that the Europeans recognise that the Greeks want a little bit more flexibility on the fiscal front.”

He said concessional interest rates on the current debt load would also go a long way to helping Greece through the crisis.

“If the IMF is smart enough to roll over its loans it should cut its interest rates as well,” he said.

“And if the Europeans are smart enough and they too extend the maturities and cut the interest rates further this can save the Greeks some serious cashflow, a few billion a year.

“The consolidation of Greece’s fiscal position has come at a high price to the Greek economy – but it has allowed Greece now to speak with more credibility about their fiscal policies, and I think that they do deserve some breathing room here,” he said.

This story Administrator ready to work first appeared on Nanjing Night Net.