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The state of the Greek economy has kept the attention of financial analysts from the country and abroad for more than a year. The controversial role of Greece in shaking the foundations of the European Monetary Union is the core reason for the events, and many economists fear that the country could become the European Lehman Brothers. Immerisia quotes the opinion of Bank of America / Merrill Lynch for nine different scenarios that could affect the market and the assessment of the local economy. The scenarios include the most probable to the most undesirable developments in the Greek economic reality.

First, financial analysts turn to the privatisation in Greece, which could significantly reduce the burden of the foreign debt and improve the profitability of the country. However, no matter how successful the privatisation program could be in the 2012-2013 period, the revenues from it would be insufficient to cover the need for additional borrowing. It would have positive impact on the capital markets where the Greek government bonds and their CDS are traded. The successful implementation of the privatisation program could even lead to higher credit rating and the corresponding reduction in the cost of government borrowing, which is impossible today.

Another option to alleviate the current economic conditions, according to Merrill Lynch, is the extension of the loans from the International Monetary Fund. This would reduce the financial burden that is expected in 2015 with the payment of the support and would improve the profile of the foreign debt. This decision, however, is not sufficient by itself because it does not solve the funding issue for the period 2012-2013. The impact on bonds and CDS would be positive in this case.

The increase in bilateral lending from the euro area and the Member States are also not excluded as an option. After the crisis Europe has accumulated around 90 billion euros for Greece. The extra credits would force state leaders to impose more strict fiscal discipline and sell assets to ensure the financial viability of the country. Thus, Greece would meet its needs for loans over the next two years, but the domestic economy of the country would sink into even deeper a recession. However, the impact on Greek government bonds and CDS would be extremely positive; the credit rating agencies could respond positively and increase the rating of the country. There would be a negative impact on the bonds and CDS of the large countries of the euro area.
 
The fourth option for securing additional funding is the European Financial Stability Facility, which could allocate 60-80 billion euros as support or a bond loan for the period 2012-2013. Thus, the credit needs of the country would be met in a time when the structural changes continue but it would also require further fiscal consolidation and sale of public assets. In this option, the Greek government bonds with a maturity of two years would be extremely successful as well as the three-year insurance on them. The position of credit rating agencies is not expected to change.

Fifthly, Merrill Lynch is considering the International Monetary Fund and the European Central Bank to further reduce the interest rate on the financial support agreed with the Memorandum in the spring of 2010. The interest rate on the support of 110 billion euros have already been reduced in March 2011 by one percent and a further cutting could have a positive impact on the utilization of the already accumulated foreign debt, but would not solve the problem of insufficient funding for 2012-2013.

And because the reduction in interest rates would not be enough, financial analysts do not exclude the possibility of extending the period for repayment of the loans on the Greek government bonds. This would happen by voluntarily exchanging the bonds of approaching maturity with others with a longer repayment period, but with the same value. In this way, Greece would postpone the payments in the period 2012-2013 hoping that it would be able to return to the capital markets having completed the recovery program in early 2014. Extending the period of repayment of the loans on the Greek government bonds, however, would significantly weaken the financial system; the interest rates on the Greek bonds would rise, while further reducing the country's credit rating would be inevitable, because such an act would be perceived as a potential bankruptcy.

The next major step is a voluntary debt restructuring. The bonds would be exchanged for others of lower value or lower interest rate. They would probably be issued by the European Financial Stability Facility and most likely the owners of bonds would be under pressure to exchange the bonds they hold for new ones of lower value. This option could improve somewhat the foreign debt sustainability, giving no guarantees that it would be reduced significantly. At the same time, it would significantly decrease the possibility the country to return on the international market for public borrowing; the country's financial system would deteriorate. In this case, there would be an admissible haircut of the Greek government bonds by 50% and the CDS market could be activated. A further downgrading would follow and the process could be reported as a state bankruptcy.