By: Dr. Mike Campbell
The second IMF/EU bailout package for Greece is worth €130 billion and unless it is given final approval promptly, there is no doubt that Greece is heading for a disorderly default. The Greek authorities have made it clear that whatever pain the Greek people need to endure under the austerity measures that have to be implemented to win the bailout and in its aftermath to deal with the underlying problems, they would be nothing compared to the cataclysm which would befall the nation should it be forced to default. The Greek authorities have voted through all of the changes demanded by their Eurozone partners and the IMF, but a further condition of the loan is that Greece negotiates a debt write-down with its creditors.
The debt swap and write-down would see creditors taking up to a 70% hit on their investments and scheduled returns, but if this is not agreed, they stand to lose all of their investments if Greece endures a disorderly default. Time is of the essence and unless 75% of Greece’s creditors sign up to the accord by 20:00 GMT tonight, the bailout package will fall. The markets were less than convinced that a deal could be reached and this accounted for the falls seen on Monday and Tuesday, but investors seemed to regain their confidence yesterday and the markets closed higher. At the close of the trading day in Europe yesterday, a little over 39% of Greece’s creditors had signed up to the deal – above half of the support needed to keep the deal alive.
In early trading in Europe, the markets have held onto yesterday’s gains and are up between 0.5 to 0.8% as traders are optimistic that enough of Greece’s creditors will sign up to the deal. If the number of signatories falls short of the 75% mark, the Euro and the markets will experience strong falls as the business community struggles to get to grips with a Greek default – the smart money is on the debt swap mustering adequate support before the deadline.