The IMF has now also acknowledged that, for Greece’s debt to be sustainable beyond 2023, repayment conditions need to be slackened. On the one hand, this strengthens Athens’ bargaining power: on the other, however, it could make a new bail-out unappealing for some euro area governments, and make it harder to reach an agreement following the referendum….<\/p>\n
<\/p>\n
Sign up for our free newsletter to receive weekly news from BONDWorld. Click here to register for your free copy<\/strong><\/span><\/a> <\/strong><\/span><\/a><\/span><\/p>\n Intesa Sanpaolo – Research Department For professional investors and advisers only<\/strong><\/p>\n _ Yesterday, the IMF published a draft version of its Debt Sustainability Analysis for Greece1. According to the document, at the end of the summer of 2014, “if the program had been implemented as assumed, no further debt relief would have been needed under the agreed November 2012 framework”. However, the picture subsequently changed, due to an easing of fiscal discipline (sharp drop in primary surplus, slowdown in privatisations) and to the freezing of the reform process; the result is a substantial increase in financial requirements on the 2015-18 horizon: 13 billion due to the smaller primary surplus, 9 billion to the failure to privatise, 7 billion in arrears, and 6.5 billion to restore an adequate liquidity buffer. As a result, the IMF estimates the financial requirements that need to be funded between October 2015 and December 2018 at 51.9 billion, and believes that in any case Greece’s debt would remain too large and too vulnerable to shocks even if valued in terms of gross financial requirements.<\/p>\n Therefore, “given the fragile debt dynamics, further concessions are necessary to restore debt sustainability”, such as an extension of the grace period and of the amortisation period. If primary surplus targets are unattainable, sustainability would also require a reduction in the nominal value of debt.<\/p>\n _ Apparently, the IMF’s considerations vindicate Greece’s claim that a new, radical review of the debt repayment plan is needed to guarantee its sustainability. However, they also confirm that the problem concerns the years beyond 2023, and that the emphasis placed on the issue by the Greek government is entirely at odds with the real order of priorities.<\/p>\n _ What’s more, the collapse of the Greek economy will make these estimates too optimistic as well. We still do not know to what extent Greece’s GDP will contract in 3Q 2015, but the fact that the crisis has broken out again at the beginning of the tourist season could have major negative effects. A 10% y\/y drop in value added in the retail sector, as was the case in 2010, would be worth 1.3 billion euros, or 3% of value added on a quarterly basis. In actual fact, the situation could prove to be much worse than in 2010, given the current paralysis of the payments system and the financial system, although the transport system as hitherto been immune from the problems seen in 2010-11. Obviously, the impact on GDP will be offset in part by plummeting imports, a trend already under way.<\/p>\n _ Doubts over debt sustainability also raise another delicate question on whether or not to provide further assistance to Greece in the coming years (decades), in addition to the 90 billion euros or so which, net of the funds used to service debt, have been transferred to the country since the crisis broke out. Eurogroup participants answer to their electors – not to Greece’s, but to those of the country they represent and whose interests they defend – within the framework of specific processes of democratic representativeness. Therefore, the principle of solidarity is evidently at odds with the political choice of transferring to the taxpayers of the participants’ own countries the cost of restoring Greece to health. In the absence of tangible threats to the stability of the euro area, or unless other considerations of a geopolitical nature have the upper hand, the cost-benefit balance of bailing out Greece again will risk lacking sufficient appeal in the eyes of some Member States, considering the new financial needs and the probability of a further, significant easing of debt. As a new ESM loan will have to be approved unanimously by the ESM Board of Governors, and as any evidence of contagion from Greece is very limited at the moment, it should not be taken for granted that all countries will cooperate honestly to keep Greece in the euro area following Sunday’s referendum.<\/p>\n 1 IMF, Greece – preliminary draft debt sustainability analysis, IMF Country Report No. 15\/165 (June 26, 2015) http:\/\/www.imf.org\/external\/pubs\/ft\/scr\/2015\/cr15165.pdf<\/p>\n Appendix Important Disclosures<\/strong> Source: BONDWorld.ch<\/p>\n","protected":false},"excerpt":{"rendered":" The IMF has now also acknowledged that, for Greece’s debt to be sustainable beyond 2023, repayment conditions need to be slackened. On the one hand, this strengthens Athens’ bargaining power: on the other, however, it could make a new bail-out unappealing for some euro area governments, and make it harder to reach an agreement following […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"telegram_tosend":false,"telegram_tosend_message":"","telegram_tosend_target":0,"footnotes":"","_wpscp_schedule_draft_date":"","_wpscp_schedule_republish_date":"","_wpscppro_advance_schedule":false,"_wpscppro_advance_schedule_date":"","_wpscppro_dont_share_socialmedia":false,"_wpscppro_custom_social_share_image":0,"_facebook_share_type":"","_twitter_share_type":"","_linkedin_share_type":"","_pinterest_share_type":"","_linkedin_share_type_page":"","_instagram_share_type":"","_medium_share_type":"","_threads_share_type":"","_google_business_share_type":"","_selected_social_profile":[],"_wpsp_enable_custom_social_template":false,"_wpsp_social_scheduling":{"enabled":false,"datetime":null,"platforms":[],"status":"template_only","dateOption":"today","timeOption":"now","customDays":"","customHours":"","customDate":"","customTime":"","schedulingType":"absolute"},"_wpsp_active_default_template":true},"categories":[50],"tags":[],"class_list":["post-1698","post","type-post","status-publish","format-standard","hentry","category-weekly-analysis"],"blocksy_meta":{"styles_descriptor":{"styles":{"desktop":"","tablet":"","mobile":""},"google_fonts":[],"version":6}},"_links":{"self":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1698","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/comments?post=1698"}],"version-history":[{"count":0,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/posts\/1698\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/media?parent=1698"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/categories?post=1698"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentworld.eu\/ch\/wp-json\/wp\/v2\/tags?post=1698"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n
\n
\n
Analyst Certification<\/strong>
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.<\/p>\n
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Banca IMI’s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and\/or representatives and\/or employees and\/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and\/or sale, or offer to make a purchase and\/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and\/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Valuation Methodology<\/strong>
Trading Ideas are based on the market’s expectations, investors’ positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and\/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and\/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports<\/strong>
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer’s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A’s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI’s web site (www.bancaimi.com) or by contacting your sales representative.<\/p>\n