This site is for archive purposes. Please visit www.eliamep.gr for latest updates
Go to Top
Παρατηρητήριο για την Κρίση

The maths behind an amended Greek plan – additional ESM financing would allow the Greek primary surplus to be lowered to 3% of GDP

Βιβλιοθήκη » Ελλάδα » Οικονομία » Κείμενα Πολιτικής
11 Φεβρουαρίου, 2015
Δεν επιτρέπεται σχολιασμός στο The maths behind an amended Greek plan – additional ESM financing would allow the Greek primary surplus to be lowered to 3% of GDP

Darvas, Z. (2015) “The maths behind an amended Greek plan – additional ESM financing would allow the Greek primary surplus to be lowered to 3% of GDP“, Bruegel Institute, 11 Φεβρουαρίου.

 

Last week I published my assessment of Greek Finance Minister Yanis Varoufakis’ draft plan, and promised to do some calculations to illustrate its impacts. Mr Varoufakis abandoned the earlier haircut demand of Syriza that I welcomed as a major step towards a Greek compromise, but noted that some elements of his plan are not feasible and instead I proposed some alternative measures, like a new ESM programme. While Mr Mr Varoufakis’s plan was received coldly by euro-area partners, recent media reports suggest that a compromise is in the making (see for example a Eurointelligence report here).

In this post I present some numerical simulations of a possible plan.

I compare the impact of various measures with an updated version of the benchmark scenario of a model I used in a blog post with Pia Hüttl recently and in a paper with André Sapir and Guntram Wolff a year ago.

I considered the following options:

  1. Indexing loans to GDP: it is not known at the moment what kind of GDP-indexing the Greek government has in mind. If it is ‘neutral’ in the sense of not leading to an expected gain for Greece, then it could serve as a useful insurance against future GDP shocks, but would not change the expected debt/GDP trajectory. A ‘non-neutral’ indexing (which would lead to an expected gain for Greece) would be seen as a non-transparent haircut by creditors and will likely be rejected. Therefore, in my calculations below I do not consider any impact of a possible GDP-indexing on the expected debt /GDP trajectory.
  2. Swapping Greek bond holdings of the ECB and NCBs to perpetual bonds: as I argued, this will likely be found equivalent to monetary financing and therefore illegal. Instead, I suggested introducing a new ESM programme for Greece with a very long maturity loan and using this loan to buy back ECB/NCB holdings (or repay them when they mature). In my calculations below I consider results up to 2030, and assume no principal repayment of this new ESM loan by this date. Therefore, for my calculations it does not matter if the ESM loan has an infinite maturity (corresponding to the “perpetual bond” proposal of Mr Varoufakis) or a long but finite maturity with a grace period at least till 2030 (similar to some of the existing loans to Greece).
  3. The new ESM programme could have a larger volume in order to pay back the more expensive IMF loans early.
  4. Extending the maturities of existing euro-area loans (EFSF and Greek Loan Facility) by 10 years and eliminating the 50 basis points spread of the Greek Loan Facility can also be considered.
  • Mr Varoufakis proposed a 1-1.5 % of GDP primary surplus, well below the targets of the Troika programme. In my simulations I consider two options: 1.5% and 3% of GDP.

 

Σχετικές αναρτήσεις: