The long overdue emergency loan for Greece is finally announced… Although there is no agreement yet about the overall amount of money to be disbursed, it is expected that the total figure will be more than €40bn at a 5% interest rate. Additionally, the European Central Bank decided last week to prolong the exceptional collateral regime, which allows banks that own Greek bonds to exchange their assets for cheap central bank funds – a significant announcement that will provide Greece and its creditors with breathing space.
But is it enough? Is it a coherent policy? Will it hold off insolvency?
The adjustment effort Greece is asked to make will be one of the largest in history. But unlike other countries that made a similar effort in the past, Greece cannot devalue; it faces a much more challenging global environment; it has a weak fiscal infrastructure; a low consensus in society in favor of deep reforms; and a fragile financial system.