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EU Said to Weigh Extending Greek Loans to 50 Years – Bloomberg

EU Said to Weigh Extending Greek Loans to 50 Years – Bloomberg.

By Nikos Chrysoloras and Rebecca Christie  Feb 5, 2014 10:03 AM ET
Photographer: Angelos Tzortzinis/Bloomberg

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The next handout to Greece may include extending the maturity on rescue loans to 50 years and cutting the interest rate on some previous aid by 50 basis points, according to two officials with knowledge of discussions being held by European autorities.

The plan, which will be considered by policy makers by May or June, may also include a loan for a package worth between 13 billion euros ($17.6 billion) and 15 billion euros, another official said. Greece, which got 240 billion euros in two bailouts, has previously had its terms eased by the euro zone and International Monetary Fund amid a six-year recession.

“What we can do is to ease debt, which is what we have done before through offering lower interest or extending the maturity of loans,” Dutch Finance Minister Jeroen Dijsselbloem, who heads the group of euro finance chiefs, said yesterday on broadcaster RTLZ. “Those type of measures are possible but under the agreement that commitments from Greece are met.”

Greek 10-year bonds rallied, with yields falling 33 basis points to 7.96 percent as of 4:02 p.m. Brussels time, the biggest drop in seven months. The Athens Stock Exchange Index jumped 2.4 percent.

Funding Gap

New money would help Greece fill a financing gap that has vexed European Union and IMF authorities working to make sure the rescue programs stay on schedule. European Union PresidentHerman Van Rompuy said last month that Greece must continue to tighten its belt even as “the people of Greece are still suffering from the consequences of the painful but nevertheless needed reforms that are taking place.”

Under the eased terms, all the bailout-loan repayments would be extended from about 30 years and rates would be cut by 50 basis points on funds from the 80 billion-euro Greek Loan Facility, which was created for Greece’s first bailout in 2010, said the officials, who requested anonymity because talks are still in preliminary stages.

As Greece seeks to meet its aid conditions and unlock more money from its existing bailouts, it’s also looking for ways to make the most of 50 billion euros that was set aside for bank recapitalization. The country had hoped some money might be left over for other financing needs. That now looks less likely because the Greek banks will need more capital, according to an EU official close to the bailout process.

Stress Tests

Greece is contesting requirements on how it should stress-test its banks, an exercise taking place before a European Central Bank review later this year, according to two officials. Hellenic banks face a mandate to keep their core tier 1 capital at 9 percent of risk-weighted assets, which Greece contends is too high. This has led to delays in its bank-assessment process, which in turn will determine how much money the banks need.

To win further easing of rescue terms, Greece is waiting for the EU statistical agency to confirm in April that it had a primary budget surplus, the balance before interest payments, in 2013. That’s the trigger set for possible debt relief. Greek Prime Minister Antonis Samaras said Jan. 30 that Greece’s primary surplus last year was more than 1 billion euros, higher than expected.

‘Not for Now’

Euro-area officials have mentioned the prospect of cutting interest rates further on the Greek Loan Facility part of the bailouts, “but this conversation is not for now,” EU spokesman Simon O’Connor wrote in an e-mail yesterday. He said focus remains on how Greece can meet its current bailout terms.

Samaras’s office declined to comment on the talks for a possible third aid package.

Officials from the so-called troika of the IMF, the European Commission and the ECB are due to return to Athens this month to renew work on whether Greece has qualified for another installment of money.

There are currently no plans for the troika of the IMF, the European Commission and the ECB to return to Athens in the near future because there is no prospect for an immediate completion of the ongoing review of the Greek program, according to two of the officials.

Finance Minister Yannis Stournaras aims for the review to conclude and a loan disbursement to be made before March, according to an e-mailed transcript of comments to reporters.

Germany’s Finance Ministry said this week it’s too soon to begin discussing extra help.

“Currently there’s no rush to decide anything,” Steffen Kampeter, deputy to German Finance Minister Wolfgang Schaeuble, said in an interview in Frankfurt this week. “We will be presented with all necessary data at the end of April, beginning of May. Only then will we be able to have a clear picture of Greece’s performance.”

To contact the reporters on this story: Nikos Chrysoloras in Athens atnchrysoloras@bloomberg.netRebecca Christie in Brussels at rchristie4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

The IMF’s Emerging Confusion On Emerging Markets | Zero Hedge

The IMF’s Emerging Confusion On Emerging Markets | Zero Hedge.

The IMF’s woeful forecasting record, chronicled extensively before, has just taken yet another hit, following the latest flip flop on emerging markets. Try to spot the common theme of these assessments by the IMF.

IMF Chief economist Olivier Blanchard, April 11, 2011 (source):

In emerging market economies, by contrast, the crisis left no lasting wounds. Their initial fiscal and financial positions were typically stronger, and the adverse effects of the crisis were more muted. High underlying growth and low interest rates are making fiscal adjustment much easier. Exports have recovered, and whatever shortfall in external demand they experienced has typically been made up through increases in domestic demand. Capital outflows have turned into capital inflows, due to both better growth prospects and higher interest rates than in the advanced economies. The challenge for most emerging market economies is thus quite different from that of the advanced economies—namely, how to avoid overheating in the face of closing output gaps and higher capital flows.”

IMF Chief economist Olivier Blanchard, July 9, 2013 (source):

“If you look country by country it seems to be specific . . . so in China it looks like unproductive investment, in Brazil it looks like low investment and in India it looks like policy and administrative uncertainty. But you wonder whether there is not something behind. I think behind this is a slowdown in underlying growth – not the cyclical component but just the average rate. It’s clear that these countries are not going to grow as fast as they did before the crisis.”

IMF Chief economist Olivier Blanchard, January 23, 2014 (source)

“Finally, we forecast that both emerging market and developing economies will sustain strong growth

A few days later, EMs around the globe crashed, and central banks virtually everywhere had to step in to bail out their crashing currencies, and hit the tape with even more impressive verbal intervention every several hours.

Finally, today we get IMF economist Alejandro Werner, January 30, 2014 (source)

“Conditions in global financial markets will stay tighter than they were before the U.S. central bank’s “taper talk” in the first half of 2013, translating into higher international borrowing costs,particularly with the recent volatility in emerging markets…. sustained turbulence in emerging markets could tighten global financial conditions further…. Rebuilding fiscal buffers, and using monetary policy and flexible exchange rates to absorb shocks where possible, remains the order of the day.

In other words, going from a forecast of “high underlying growth”, to “not going to grow as fast as they did”, to “sustain strong growth”, to violent EM crash, to “turbulence”, “volatility”, and urging EMs to “using monetary policy to absorb shocks”, what is clear is that nobody knows what is going on, nobody has any handle on the future of Emerging Markets, but let’s all just pretend that the MIT central-planners in control, are in control, and all shall be well.

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