Greece has needs financing of about €28 billion over the next two years and has no access to capital markets. A disorderly default on official debt would cut off Greek banks from collateralized lending from the ECB, and would likely result in a dangerous banking and currency crisis. On the other hand, a Grexit [Greek exit from the EU and euro] would send shock waves through the Eurozone. Markets may once again price exchange rate and default risks in peripheral countries' (e.g. Italy) sovereign debt, jeopardising the financial stability of the area as a whole.He thinks the results of the bargaining will only give a little breathing space to Greece, because of the financial reality;
With a debt to GDP ratio above 175%, Greece pays about 4.5% of GDP in interest, less than Italy does, with 134%.Predicting that Greece will be allowed to reduce its budget surplus--and its repayments to its creditors--from a currently planned annual 5% of GDP to about 3.75%.
It is more likely that negotiations will concern giving more time for fiscal adjustment.
- Second, a restructuring would prompt similar requests from other peripheral EU debtor countries, opening up a Pandora's Box.
- Finally, the German electorate does not want to hear about debt forgiveness.
Much electoral ado, about not much.