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Greek report Greek report
by Euro Reporter
2011-11-30 07:13:58
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Greece sees rise in homeless rate

Greece is faced with a growing homeless rate as the new interim government of Lucas Papademos continues to struggle with the country's economic crisis. Since the 2008 onset of the economic crisis in Greece, about 20,000 people have become homeless, the Associated Press reported. The developments come as the country's public sector has also been witnessing harsh budget cuts.

Over the past few years, the non-governmental organization of Klimaka's homeless shelter located in central Athens has been handling the increasing number of homeless people. Klimaka workers say the great majority of those who have become homeless since 2008 are educated and belong to the society's middle class.

Since May 2010, Greece's economic crisis has caused sweeping turmoil across the country, forcing the government of former Prime Minister George Papandreou to resign. Athens must persuade both the EU and the IMF that it is making sufficient financial reforms, otherwise, it will not receive the next USD 11 billion portion of its bail-out loans; it is estimated the government will go bankrupt within weeks. Greece's public debt equals some 162 percent of its gross domestic product; if it fails to obtain international support, the country will run out of money and default on its debts within weeks.


Greece doesn't want to be sidelined in EU-minister

Greek Interior Minister Tassos Giannitsis appealed to Germany on Tuesday to ensure his country was not sidelined in Europe on account of the euro zone debt crisis and said Europe needed closer economic integration. The minister said the overwhelming majority of Greeks wanted to stay part of Europe and to keep the euro as their currency. "It would be an enormous historic mistake if a whole nation ... which has shown and will continue to show enormous strength and which is viewed as an integral part of Europe were sidelined because of today's systematic euro crisis," he said in a speech at the South-Eastern Europe Society in Berlin.

Germany is the biggest contributor to bailouts for over-indebted member states including Greece. Giannitsis said Europe's biggest economy had a unique historical chance to steer the euro and European project in a new direction. "The advantages would be enormous for everybody: for Europe, for Germany and for the international system in general." Athens has promised to tackle its debt mountain in exchange for bailout loans from euro zone partners and the International Monetary Fund, but has repeatedly frustrated its partners by failing to meet budget targets set as conditions of the aid.

Euro zone finance ministers and officials are likely to approve the next emergency loan payments for Greece at meetings this week. Giannitsis said Europe needed a dual strategy of budget consolidation and expansive Keynesian policies and he stressed the importance of closer European integration. "Today the introduction of stricter economic and fiscal governance seems to be the necessary extension of the currency integration," he said. "But if a new model does not lead to a balancing within the euro zone, then we will see divergence rather than convergence within Europe."


Greece's new debt proposal still leaves lots of questions

As the Greek-debt drama unfolds, there is a battle brewing over 15 euro cents, according to people familiar with the situation. No official offer has been made to creditors. But one proposal has been floated by Greece that the banks deem far more aggressive than what they thought they agreed to back in October. Greece wants to offer 15 cents of cash and 35 cents of new debt for every 100 cents of debt owed to a creditor.  The 15 cents in cash would come from borrowing 30 billion Euros the EU agreed to lend to Greece—and to be used as a sweetener to get bondholders to come to the table and participate. However some in the banking community believe the 30 billion Euros put up by the EU was intended as collateral to underpin 50 cents in new debt—not to reduce Greece's outstanding debt.

Why would a creditor prefer 50 cents in new debt rather than 15 cents cash /35 cents debt? Creditors may believe that the 35 cents in new debt would not trade at par, or face value. How any piece of debt trades is based on a number of factors; the interest rate, length of time of the bond, and the "discount rate"—simply put: the debtor's credit worthiness. It's a number that reflects what the lender believes is the likelihood the debtor will actually pay it back. The higher the discount rate, the less confidence creditors have in a debtor’s ability to pay. There is no official discount rate—it is always in the eye of the holder. What could not be learned is the interest rate and duration of the 35 cents in new debt in the Greek proposal, and what discount rate is being assumed. What is also not clear is whether European officials in Brussels find this proposal acceptable.

However, critics of the banks' 50 cent/all-debt deal say it does not reduce Greece's debt-to-GDP by enough, violating one of the key requirements set by the IMF and EU. When a deal was struck with European banks back in October to accept a 50 percent haircut on the Greek debt they held on their books, EU leaders imposed three conditions:
1. Greece's private sector debt must get cut by 50 percent of face value.
2. The deal must lower Greece's debt to GDP ratio to 120 percent by 2020.
3. The deal must be voluntary so as not trigger a credit event that would incur the payment of credit default swaps.

There is still intense debate about whether it is even possible to structure a deal that would fulfil all those parameters. A creditors' committee, headed up by Charles Dallara of the Institute of International Finance, has been formed and will meet with Greece on Tuesday in Brussels. The IIF is a bank lobbying group that does not own any Greek debt but represents many financial institutions that do. Dallara represented the private sector in negotiations with German Chancellor Angela Merkel last October.

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