Greece Gets Bailed Out

In a nod to the late-2008 era of the weekend bailout, it has been announced that Greece will receive up to 45 billion euros in financing over the coming 12 months.  30 billion of this will come from the EU in the form of 3-year loans at 5%, about 2% lower than the current yield on 3-year Greek debt, and the other 15 billion will come from the IMF, presumably at even lower rates.  This is approximately double the size of the previously announced package.  In agreeing to this package, the EU leaders have effectively said "here is the financing you need to get over the hump until you get your deficit under control, thereafter you should be able to obtain reasonably priced financing in the private markets".  I can only imagine the tug-of-war that must have gone on behind closed doors to get this done.  What happened to the talk of "financing at market rates"?  German representatives must be fuming.

Anyways so the million dollar question is what does this change?  According to Bloomberg this figure will not entirely cover Greece's financing needs over the coming 12 months, but clearly the lion's share of financing needs are spoken for.  The Greek's are playing it cool, with Finance Minister George Papaconstantinou claiming that they are going to go ahead with financing as planned - including the rumored 10B USD dollar that Greece is preparing the roadshow for.  It will certainly be interesting to see how much lower Greek yields/CDS open tomorrow.  I don't have time to run all the numbers, but assuming that they do tap this financing at 5%, they will effectively save 2% of 45 billion euros annually.  Savings of 900M euros annually for an economy of circa 250 billion euros (forgive me if I err here, I am in a rush and pulling these numbers from memory), that equates to annual savings of less than .5% of GDP.  My initial reaction is that this package is a band-aid rather than a game changer.  More tomorrow when I have had a chance to think/read a little more about it.