Greece’s Debt Labyrinth

Carlos ZGZ - Flickr

According to USA Today, a potential debt deal for Greece appeared to stumble yesterday as Greek Prime Minister Alexis Tsipras suggested that international creditors did not accept the latest round of reform proposals from Athens. Global markets, which have been gaining all week on expectations that a last-minute deal is likely, declined as a result of the news.

Without a deal, there are fears the southern European country could default on a 1.6 billion euros ($1.8 billion) loan repayment to the International Monetary Fund (IMF) that is due June 30th. This is part of a 242.8 billion euros ($271 billion) financial assistance package Greece received from lenders during the financial crisis.

Here is a breakdown of Greece’s foreign debt explained by Newseek:

International Monetary Fund

Greece was promised a total of 48.1 billion euros by the IMF, of which 16.3 billion was still to come by March 2016 if Athens successfully completed the second economic adjustment program. Greece had serviced and repaid loans on time up to this month. In order to try to make the end of June deadline, it used an obscure IMF provision to bundle together four payments totaling 1.6 billion euros.

European Central Bank

The European Central Bank (ECB) owns roughly 18 billion euros of Greek bonds, which would probably be worth a fraction of their face value should the country leave the euro zone, with 6.7 billion euros maturing in July and August.

Beyond a default on Greece’s national debt, any exit of Greece from the euro zone would leave the ECB with a huge bill for lost credit. ECB President Mario Draghi recently said that Greek banks had tapped 118 billion euros of central bank liquidity. This includes 89 billion in what is known as Emergency Liquidity Assistance which would be the responsibility of the country’s central bank only if Greece stays in the euro. Were it to leave, the bill would rebound on other euro countries, including Germany.

The Euro Zone

Euro zone governments gave Greece 52.9 billion euros in loans under the first bailout agreed in 2010, known as the Greek Loan Facility. Under the second bailout agreed in 2012, Athens has so far received 141.8 billion euros from the euro zone’s financial rescue fund. Athens had been due a further 1.8 billion euros by June 30 if it met certain conditions. Barring major surprises, that is off the table.

Of the biggest euro zone members, Germany’s exposure for the two bailouts totals 57.23 billion euros, France’s is 42.98 billion, Italy’s is 37.76 billion and Spain’s is 25.1 billion. That is in addition to their contributions to the IMF loans, commensurate with their respective quotas in the global lender.

Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

Greece has asked for further debt relief from the Europeans, a move supported by the IMF. In response, euro zone governments have said they would only discuss this request if Athens further tightens its budget.

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Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti

(Photo: Carlos ZGZ, Flickr)

2018-09-20T04:01:24+00:00June 25th, 2015|Categories: Finance|Tags: |