Russian Economy News: Greece was given the chance

Wednesday, July 22, 2015

Greece was given the chance – BBC

International rating agency Standard & amp; Poor’s for the first six months increased the credit rating of Greece. The upgrade was made possible after Athens agreed to the terms of European lenders, as well as received a bridge loan in the amount of € 7,16 Bln. But these funds the Greek government will not last long, as the EU and the IMF make it clear that no Greek debt write off will not.

The international rating agency Standard & amp; Poor’s (S & amp; P) has upgraded Greece’s credit rating by two notches to CCC- to CCC + with a stable outlook, reports Bloomberg. Short-term credit ratings of the country’s foreign and local currency affirmed at C with a stable outlook.

The affirmation reflects the improvement in Greece’s prospects of Greece after Athens agreement on a three-year program of financial assistance through the financial mechanism ESM, along with the release of the Greek government bridge loan in the amount of € 7,16 billion for the three months that was used to pay off the arrears to the IMF and debt payments before the European Central Bank, the ECB, the report says the rating agency.

Increasing the international credit rating of Greece was the first in many months the Greek crisis. The last time the S & amp; P lowered the long-term rating of Greece by one notch to «CCC» to «CCC-» with negative implications on June 29, before the IMF Athens missed a payment in the amount of € 1,5 billion euros.

The total debt of Greece, which became the first developed country defaulted on obligations to the IMF, is € 323 billion. Among the largest creditors of Greece – European countries, namely Germany (issued debt in Greece € 56 billion), France ( € 42 billion), Italy (€ 37 billion), the IMF (€ 32 billion), the ECB (€ 20 billion), and others. By the end of the summer the Greeks will have to pay almost € 15 billion. Among them € 1 billion, which must be sent prior to 7 August for the payment of short-term government bonds at a rate of 2.75%, and € 3,2 billion are to be transferred ECB and national banks until 20 August.

In order to save the Greek economy from collapse last week, the EU decided to allocate a bridge loan – short-term loan, usually issued at a sufficiently high percentage to cover current obligations, issued by the European Financial Stability Mechanism (EFSM) € 7,16 млрд size.

However, additional funds were allocated to Athens only after the agreement with creditors, the negotiation of which took place on July 13 and the final decision in the Greek Parliament held July 16.

The main points of the agreement involve the VAT increase to 23 % for restaurants and food businesses, the increase in VAT on food, energy, water for hotels up to 13%, and 6% – to trade in books and medicines. The reforms also include the abolition of the VAT discount for residents of the Greek islands, increasing the income tax from 26 to 29% for small enterprises, increase the luxury tax, the abolition of early retirement by 2022, and raising the retirement age to 67 years.

It is also a key condition was the adoption of large-scale privatization program, which involves the establishment of the Athens-based independent foundation. The management of this fund will give the Greek assets totaling € 50 billion. Half of these funds after the monetization will be used to recapitalize the Greek banks. The remaining € 25 billion will be allocated to reduce the coefficient “a debt / GDP ratio.”

From the consent of the Greek Parliament with the terms of European lenders also depends on a three-year aid package for the Greek economy preddefoltnom – € 86 billion, which the parties will be discussing this week. The package of funds that may be granted under the program ESM, planned to form as early as the middle of August.

Despite the fact that the Greek lenders are willing to continue to give out money in the debt of Greece, among them there is no consensus about the fact will help the country’s economy if the new loan and financial aid programs.

For example, recently said Christine Lagarde, head of the IMF, one of the largest creditors of Greece, the Greek debt to the eurozone countries need to restructure. According to her, no debt relief third package of financial aid to Greece is useless.

«The plan is not viable without the aid of debt reduction”, – said Lagarde. In her opinion, there are three ways to restructure Greek debt: an increase in the maturity of loans, the extension of the grace period, during which the Greeks could not make any payment, and the maximum reduction of interest on loans.

With this approach, other creditors do not agree, in particular Germany. As stated by Chancellor Angela Merkel of the country, to write off the debts of Greece, no one will. “This ( debt relief. -” Times ») can not be in the monetary union,” – said Merkel. According to her, the country can only discuss easing credit conditions. In particular, it may be extended maturities and lower interest rates. Write off debts and the European Commission does not intend to.