EU exec sees Greece returning to market in H2 2011

* Bailout based on assumption of early return to market

* Greece will not need market access for up to two years

By Jan Strupczewski

BRUSSELS, May 3 (BestGrowthStock) – The European Commission expects
Greece will be able to return to markets for funding in the
second half of 2011, once it has won back credibility by
implementing tough reforms, officials said on Monday.

Euro zone finance ministers agreed on Sunday to a 110
billion euro ($146.5 billion) EU/IMF loan package for Greece
over three years to allow the debt-stricken country to finance
itself at sustainable rates while overhauling its public
finances and institutions.

But the total will not be enough cover all of Greece’s needs
for the three years because it is based on the assumption that
Athens will be able to tap markets already in one-and-a-half to
two years from now, a Commission official said.

“The 110 billion is based on various assumptions, also on
market access. It is not assumed that Greece will have no market
access throughout the programme, although it will not need
access in the first one-and-a-half to two years,” said the
Commission official, who asked not to be named.

“They will get back to the market in the course of 2011 at
the latest,” he said. “If they had no access throughout the
three-year programme, they would fall short, but it is not a
reasonable assumption.”

Commission officials said the emergency loan programme was
meant to provide Greece — which had a budget deficit of
13.6-14.1 percent and a debt-to-GDP ratio of 115 percent in 2009
— with money while it implemented tough fiscal and structural
reforms to put its public finances back on track.

The Commission was working on the assumption that once banks
and credit rating agencies saw the determination with which the
Greek government was implementing the agreed reforms, they would
take a more favourable view of Greece than now, he said.

DISBURSEMENTS TO DEPEND ON REFORMS

The loans to Greece, 80 billion euros of which would come
from the euro zone and 30 billion from the International
Monetary Fund would be paid out in 12 instalments over three
years on the basis of Greece’s financing needs.

Disbursement would, however, depend on progress in
implementing reforms and be decided based on quarterly reviews.

The first instalment will be paid out in mid-May, the
official said, to cover commitments to repay 8.5 billion euros
in maturing debt. The exact size of further tranches has not yet
been determined and will depend on Greek needs.

To lend to Greece, the 15 other members of the euro zone
would borrow money on the market at their own rates. They would
then send the money to the European Commission which would turn
them into fixed-interest loans, carrying interest that in
current market conditions would be around 5 percent.

All euro zone members should make a profit on the loans,
officials said, with those who can borrow most cheaply and lend
the most making the biggest profits.

Were some countries would have to borrow at rates above
those at which the money would be lent to Greece, they would be
compensated by euro zone countries that still make a profit.

“No country will make a loss,” the official said.

The loans are for three years, so Greece will start repaying
them from mid-2013 until mid-2016, assuming disbursements
continue throughout the 3-year programme.

Commission officials said they did not believe this would be
necessary since Greece would be able to borrow from the market
earlier, and if it does, the borrowing would be instead of,
rather than on top of, the emergency euro-zone loans.

Penny Stocks

(Editing by David Brunnstrom, John Stonestreet)

EU exec sees Greece returning to market in H2 2011