Greece must achieve interest rate reduction on government bonds

20.01.2012 Recently the finance ministers of the eurozone at the official meeting in Brussels during the discussion of the economic situation in Greece have rejected the agreement reached between Greece and representatives of banks and private equity funds with respect to the purchase of government bonds. According to the ministers’ opinions, with this agreement it’s impossible to cut Greek sovereign debt to an acceptable level and it’s necessary to reach a new agreement within the framework of the issue.

According to eurozone countries officials’ opinions, the restructuring of the Greek debt suggests that banks and other financial institutions agree to reduce the par value of Greek bonds in twice, and the maturity of such bonds will be increased to 30 years. Greece, according to the eurozone finance ministers’ opinions, has to achieve lower interest rates on government bonds, rather than ones accepted by banks. Thus, financial institutions will have to write off a part of the Greek debt.

Expert’s opinion

“Seriously affected by the crisis Greece is now in critical situation. However, there is the way-out: Greece should lower interest rates on bonds. That will reduce the public debt from 160% of GDP to 120% of GDP by 2020. Greece has to reach new agreements for the purchase of government bonds with banks in the near future otherwise the country will not receive a new tranche from Eurozone stabilization fund and the IMF.
If Greece doesn’t receive financial assistance, the situation of default will be very real - and then it’s not clear what consequences will be for the whole of Europe”.

On the basis: www.bbc.co.uk

Vorontsova Maria ( the lawyer of international consulting department of Honest&Bright)