Greek
public debt could be more than 80 billion euros lower and therefore
viable since 2012, in case that bonds buyback in December 2012 would
proceed under pre-agreed prices after negotiation, according to two
economic and legal studies, as revealed by the journal "Epikaira".
An
analysis by Panos Panagiotou*
These
studies are: "The Greek Debt Restructuring: An Autopsy", by
Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati under the
Peterson Institute for International Economics, and "The
Gathering Storm: Contingent Liabilities in a Sovereign Debt
Restructuring", by Lee C. Buchheit and G. Mitu Gulati.
These
studies conclude that there were unjustifiable mistakes which cost
Greece more than 80 billion euros in uncut and un-buyback debt,
without losses from payments on interests, recession and unstructured
bonds under the state guarantee to be considered.
According to
the facts of these studies, Greek public debt could be close to or
below 120% of GDP in 2014, and therefore considered viable since
2012, ending officially the Greek crisis.
More
specifically, the debt could be lower in case that the Greek bond
buyback price would be different from the then market prices which
were over doubled relative to those of the preceded PSI program. In
case that the PSI program would be designed differently and applied
earlier, when it was initially decided, in June 2011, instead of a
few months later, in March/April 2012, the Greek debt would be
significantly lower, according to the article of "Epikaira".
Additionaly, the loans of PSI could be smaller.
Additionally,
the Greek state lost the opportunity to restructure hundreds of bonds
under the Greek state guarantee, by choosing to put in the PSI only
36 series of bonds under the state guarantee - those, which under the
rules of Eurostat should be considered part of the public debt.
The most
important mistakes
According to
the study of Peterson Institute for International Economics on PSI
program and buyback bonds in December 2012, authorities went out of
targets by:
- Offering
exceptionally high cash “sweeteners” (15% of the value of old
debt, the largest such
sweetener ever recorded);
- Offering
an upgrade of governing law for most creditors (from old Greek law bonds to new
English law bonds), as well as the “co-financing agreement” with the EFSF
which tried to align the priority of bondholders with that of some official
loans;
- Leaving
sovereign guaranteed bonds untouched and outside the reach of the 23 February
bondholder law.
- Using
domestic law merely to introduce a collective action provision rather
than to change
payment terms;
- Eschewing
legal techniques such as exit consents to discourage potential holdouts
among the holders of English law bonds;
- Offering
unsuccessful holdouts exactly the same bundle as participating
creditors (as opposed
to keeping their old bonds with modified payment terms, for example,
which would have put them at a disadvantage);
- Avoiding
default threats directed at potential holdouts (with few last-minute exceptions,
see section 3), hence giving the impression that except for the use
of collective
action provisions, the exchange was indeed voluntary – and indeed confirming
that impression ex post by repaying holdouts in full and on time;
- Carrying
out the December buyback at market prices, rather than using a fixed negotiated
buyback price.
Also,
according to the calculations in the specific study, Greece could
achieve a direct nominal decrease of debt up to 64.9 billion euros in
case that costly PSI mistakes would be avoided:
"To
summarise, the debt restructuring could have been handled better,
even without involving the ECB or bailing in bank bondholders. In
particular, it should have been conducted earlier and used a
different design, involving modestly higher average present haircuts
applied consistently to all bondholders. The combination of earlier
timing (for example, conducting an exchange in June of 2011 rather
than March/April of 2012) and different design would have achieved
additional debt relief of perhaps €60 billion in face value terms
and €45 billion in present value terms – almost 25 per
cent of GDP. This would almost surely have been sufficient
to make the remaining Greek debt sustainable."
Concerning
the bond buyback at market prices rather than using a fixed
negotiated buyback price, it was something that cost to Greece 7 to
17.4 billion euros, according to the study.
A direct
cost of 82.3 billion euros
According to
the researchers of the Peterson Institute for International Economics
study, the cost for Greece as direct nominal debt decrease is up to
82.3 billion euros (up to 64.9 billion euros from PSI and up to 17.4
billion euros from bond buyback).
The cost of
these mistakes prevented Greek debt to become viable, already from
2012, and extended the crisis for at least two years. This has
resulted in further cost by shrinking GDP, as well as paying
interests for the debt, among other things, while led to new loans
for the completion of PSI and probably new loans for the 2014-2015
period.
*Panos
Panagiotou is a stock market technical analyst
Source:
Notes:
It
would be worth to focus on the conclusion that
"The
combination of earlier timing (for example, conducting an exchange in
June of 2011 rather than March/April of 2012) and different design
would have achieved additional debt relief of perhaps €60 billion
in face value terms and €45 billion in present value terms –
almost 25 per cent of GDP. This would almost
surely have been sufficient to make the remaining Greek debt
sustainable."
because
during the crisis, the Greek GDP shrank by 25%.
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