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PSI will act as a positive shock to the Greek economy

29 December 2011 / 16:12:14  GRReporter
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PSI or the voluntary involvement of private creditors in the haircut of the Greek debt will act as a positive shock to the local economy, argue the leading economists of Eurobank EFG in their annual report. The document bears the signatures of Dimitrios Malliaropoulos, Research Advisor of the institution, Platon Monokroussos, Head of Financial Markets Research, and Tassos Anastasatos, Senior Economist, Division of Economic Research and Forecasting of the bank. According to the economists, the negotiations on the PSI should be completed as quickly as possible before the economic climate in the eurozone worsens. Furthermore, their successful completion will remove a great burden from the shoulders of the Greek state indebted up to the neck and will attract foreign investment.
    The report stresses that the second huge 130-billion-euro bailout to Greece will improve the liquidity of local banks and will pour fresh money into the economy. It will fully cover the duties of Athens to its creditors by the end of 2014. One of the effects of the financial bailout will be the reduction of the cost of servicing the interest on the debt in the period 2012-2020 with a significant rate, which is estimated at about 2 per cent of GDP. As is known, the conclusion of the PSI negotiations is the condition for granting the second bailout package agreed on 26 October.
    Additional benefits according to Eurobank EFG would come from equalizing the conditions on bilateral loans, which Greece has received from European Union countries with the conditions under which it will receive loans from the European Financial Stability Facility. According to the three economists, three are three tasks to the economic policy of the government - the first is the sharp cuts in public spending and explicit implementation of structural reforms. Unlike the current practice of horizontal reduction of public sector wages, Dimitrios Malliaropoulos, Platon Monokroussos and Tassos Anastasatos suggest that the public sector itself should be reduced. As for tax policy, they suggest that it should be reconsidered and changed to stimulate production and to lead to positive economic growth. They stress again the need to broaden the tax base - i.e. to increase the number of people who pay taxes. The second task for the government is to achieve a GDP growth and the third one - the recent completion of the negotiations for PSI.
    For its part, the Greek government beats a retreat by saying that negotiations with private creditors will take more time than expected. It argues that the Greek state is only formally part of the conversations actually led between private banks and insurance companies represented by the Institute of International Finance and representatives of the European Commission and the International Monetary Fund. Both parties aim to achieve conditions under which they will have the least losses. Banks and insurance companies argue that the exchange of securities with new bonds with reduced face value and cash actually reduces their value by 65 per cent rather than 50 per cent and therefore, they insist on a higher interest rate of around 6.5 to 8 per cent.
    On the other hand, the public creditors of Greece – the European Union and the International Monetary Fund warned that if the requirements of banks and insurance companies were satisfied, the new bailout to Greece would be between 140 and 150 billion euro, and not 130 as agreed on 26 October.

Tags: PSIPrivate creditorsNegotiationsDebt haircutGreek economic crisisEurobank EFG
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