The EU rescue plan for Greece – What’s in there ?Posted: April 12, 2010
The Europe & IMF plan to help Greece details have been released last weekend. It consist of a huge amount of money – from 30 to 45bn euros this year – that is ready to be loaned to Greece at an interest rate of 5%, well below the 7+% Greece is paying on the market. This massive intervention is however still not in action : Greek PM Mr Papandreou still claims that Greece can finance itself on the market and there is no need yet for a rescue plan.
These details have received a good welcome on the markets : the Euro regaining about 1% against the dollar on Monday ; and European stocks making good progress too.
Two questions remain :
Are the euro-zone countries paying for Greece ? Not exactly… These 30bn of euros are a loan, which Greece will have to pay back. The conditions of this loan (the 5% interest rate) are advantageous for Greece, but while countries like France and Germany are putting this money on the table, they hope to get it back.
What happens next ? Two possibilities : either the market calm down and investors continue to buy Greek bond with a high but reasonable interest rate : the y have all the reasons to prefer lending money to Greece at an interest rate just above 5% instead of watching Greece getting its money from Europe.
Or they continue to fuel the crisis, to push the interest rates higher , in order to get as much as possible before Greece goes to Europe… Because having a plan on the table and putting it into action are two completely different things.