ECONOMY

First tranche of loan coming

As the first 15-18 billion euros from the international financial aid package is set to arrive in Greece some time next week, the competent European commissioner has warned of a paralysis in the global financial system should Greece go bankrupt. Finance Minister Giorgos Papaconstantinou yesterday signed the official request for the disbursement of the first tranche of funds from the European Union and the International Monetary Fund, while EU sources suggest that Greece secured a longer repayment period at the last moment so as to facilitate better management of its debt. Kathimerini understands that the most likely scenario is for the loans to be repaid within five years instead of three. This means that the cost will grow by 1 percent and range around 5 percent for the floating rate and 6 percent for the fixed rate. Eurozone heads of state and government yesterday signed the agreement relating to the loan contracts, while the International Monetary Fund is expected to gives its green light tomorrow. The amount of 15-18 billion euros will be disbursed by the IMF and EU countries. A large portion, some 9 million euros, will go straight into state coffers for the repayment of a state bond totaling 8.5 billion euros that matures on May 19. The rest will go to the Credit Stability Fund, while a total of 10 billion euros from the package’s 110 billion will go toward shoring up the capital adequacy of local banks. Although Finance Ministry officials suggest there is no immediate need to support Greek lenders, it seems that Europe and the International Monetary Fund will appear more generous and supply some 5 billion euros to the fund from the very first package, without excluding the possibility of the entire 10 billion euros being offered from the outset. Subsequent tranches will likely be disbursed every three months, unless there are no significant deviations from the economic program Greece has agreed to implement over the next three years, with each installment amounting to 11 billion euros, sources suggest. Rehn warning Economic and Monetary Affairs Commissioner Olli Rehn yesterday warned that a Greek bankruptcy would cause a paralysis in the global financial system and generate a world recession similar to the one created by the collapse of Lehman Brothers in 2008. In an article to Finland’s weekly magazine Suomen Kuvalehti, Rehn noted that the bankruptcy of the Lehman Brothers investment bank paralyzed the global financial system «but the consequences of Greece’s insolvency will be similar, if not worse.» Germany’s Finance Minister Wolfgang Schaeuble stressed that all top policymakers agree it would be disastrous to allow Greece to go bankrupt, adding that the Germans and all eurozone countries «must defend the common European currency.» Inflation soars to 4.8 percent in April Inflation soared to 4.8 percent in April from 3.9 percent in March, owing to the increase in the special consumption tax on fuel, tobacco and alcohol and the rise in value-added tax, especially on food products, according to figures that were released yesterday by the Hellenic Statistical Authority (ELSTAT). The national statistics organization is now expecting an even greater rise in the consumer price index in the coming months given that the hikes in special consumption taxes and VAT decided this week have not yet been factored into the market. Inflation this year is running at an average rate of 3.5 percent, compared to just 1.5 percent in the first four months of 2009. However, the Finance Ministry is expecting the mean rate for 2010 as a whole to come to 1.9 percent. Essentially, this indicates that the government is expecting a significant decline in consumption from the start of the second half of the year. ELSTAT data showed that the biggest year-on-year rise in prices last month was recorded by gasoline, which soared by 50.8 percent from April 2009.

Subscribe to our Newsletters

Enter your information below to receive our weekly newsletters with the latest insights, opinion pieces and current events straight to your inbox.

By signing up you are agreeing to our Terms of Service and Privacy Policy.