Prospects for a Third Bailout for Greece

The EU approved the 130 billion-euro second Greek bailout on March 14, after the country’s government agreed to spending cuts and structural changes.

After the final approval of a second bailout package was received, the International Monetary Fund said the country may require additional funding or further debt restructuring. Some economists say the risk still remains that Greece will leave the single-currency area.

According to some analysts, Greece’s bonds and credit ratings are factoring in a third bailout for the nation that will require greater concessions from its international creditors.

The price of Greek government bonds maturing in February 2042 that were provided as part of its debt exchange was at 21.48 cents on the euro at 8:04am GMT, with yields at 15.02 percent. Standard & Poor’s said on March 15 that it rated the securities CCC, its fourth rank above default. S&P’s justified its rating on the basis of Greece’s questionable growth prospects, a weakening political consensus to implement budget cuts and a large remaining debt burden.

The objective behind the required implementation of austerity measures and the allocated financial aid is to bring Greece’s ratio of debt to gross domestic product to 116 percent in 2020 from 165 percent in 2011 and set the country on a path of sustainable growth.

Greece remains “accident prone” and may require further debt restructuring or additional financing from euro zone countries, if it fails to implement measures agreed to for securing a 130 billion-euro bailout, the IMF stated in a report released on March 16.

Greek Prime Minister Lucas Papademos also mentioned in his interview to the FT that the nation may need more external support if it is unable to return to financial markets by 2015.

Source: Bloomberg

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