On Vox, Peter Allen, Barry Eichengreen and Gary Evans deploy acrobatic arithmetics for reducing Greece's debt through asset sales. It seems academic circles, not markets, are most hung up with Greece's debt!
The Peter-Barry-Gary proposal goes as follows:
"The ECB, ESM and EU should commit a portion of their holdings of Greek government loans and bonds to a swap facility. Private investors interested in purchasing government assets could then buy loans or bonds with a face value of €1,000 for, say, €500. The Greek government, for its part, could agree to accept those bonds as currency for, say, €750 when selling government property at auction."
Greece's EFSF debt, at long maturities and low and deferred interest rates, is nothing to give away easily. Greece should guard its official debt like a jewel! The cash savings from reducing Greece's official debt by EUR1,000 are hardly existent, as interest is deferred for 10 years, the spread is zero, and the maturities are ultra long. Greece's opportunity cost of forgoing this deal (and if needed incur additional debt) is low. The artificial price tag of EUR750 does not matter.
Further, Peter-Barry-Gary write:
"The ESM, meanwhile, will be able to liquidate some of its loans to Greece without incurring additional losses because it has already lowered interest margins and fees and extended maturities on most of them. These loans already have a low fair market value of, at most, 50 cents on the euro."
Nope. Official creditors have booked the debt at face value. They would not be happy to write down half of it. Since the loans match the funding cost, the value to the creditors is 100, and any other "fair" or "market" value does not matter to them.
Besides, there are plenty other problems with state asset sales. Land titles and legal issues seem to hinder privatization in Greece in particular. Maybe Peter, Barry, and Gary can develop a solution for that?
0 comments:
Post a Comment