Greek prime minister George Papandreou
Almost lost in yesterday’s brouhaha over Standard & Poor’s warning about the latest proposal for bondholder participation in a new Greek bail-out was a report published by the European Commission that, for the first time, publicly detailed just how much money Greece will need in a new three-year rescue: €172bn.
We mentioned that eye-popping figure in our coverage this morning, but the 165-page report – a detailed overview of the Commission’s findings during the run-up to this month’s €12bn aid payment – is worth a more thorough review, since it contains a lot of interesting details on just what the Greek rescue programme looks like.
As the report makes clear, it’s important to note that €57bn of that €172bn will be covered by Greece’s existing bail-out, which was scheduled to run through mid-2013. Of the remaining €115bn, Greece has vowed to raise €30bn on its own through a massive privatization effort. That leaves eurozone governments and the International Monetary Fund on the hook for the remaining €85bn.
The ongoing talks with German and French banks have all been part of an effort to lower that burden, but it’s currently not clear whether government officials will be able to muster commitments by the banks to reinvest more than about €10bn in Greek bonds they hold that come due between now and mid-2014.
One of the most stunning revelations in the report is just how badly the current, €110bn bail-out missed its targets. As the chart on page 45 makes clear (see pdf of the page here), Greece needs €127bn in financing through the end of the current programme. With only €57bn left in the EU-IMF kitty, that’s a whopping €70bn off course.
Much of that miss was due to a deeper-than-expected Greek recession and unrealistic goals for Greece to go back to the bond market to raise money on its own by March of next year. Although the report doesn’t explicitly say this, it’s pretty clear they won’t be calling on Athens to raise that kind of money on the open market again any time soon. As one section of the report notes:
The cost of market financing remains prohibitive. Yields have increased substantially in recent months recording peaks well above those registered at the programme’s inception. It is unlikely that yields will return to affordable levels in a matter of a few quarters.
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