–Doesn’t Expect Greece To Need Full E110 Billion Over Three Years
–Says Greece Could Return To Capital Markets As Soon As September 2010

BRUSSELS (MNI) – The first tranche of aid for Greece will be at
least E8.5 billion and will be disbursed in mid-May, European Commission
officials said on Monday.

The Eurozone countries and the International Monetary Fund agreed
Sunday to lend up to E110 billion over three years to heavily-indebted
Greece, E80 billion of which will be bilateral loans from Greece’s 15
Eurozone partners and the remaining E30 billion in the form of a standby
facility from the IMF.

The deal assumes Greece is fully out of the capital markets for a
maximum of 18 months – until the end of 2011 – but Commission officials
said they thought the country would be able to tap markets before then,
perhaps even as soon as November this year.

They also don’t expect Greece to need to use the full E110 billion,
they said.

The first tranche will be delivered in mid-May, the officials said,
followed by 11 further tranches at three-month intervals.

“We know there are 12 installments,” said one official, who has
knowledge of the deal. “They will not be equal in size.”

The first installment will be more than E8.5 billion, the official
said, because Greece has to refinance that amount on May 19.

The amount of future disbursements “will depend on what happens in
Greece,” he said. “Policy conditions must be met before the money is
redeemed,” he added.

“The reason that we are tranching this is so that the Greeks do as
they are committed to do,” the official said. “It’s a quid pro quo. Like
any good risk manager, you don’t hand over all the money at once.”

The working assumption of the plan is that Greece will return to
the markets after 18 months, towards the end of 2011.

“That’s a cautious assumption,” the official said. “Returning to
the market is a choice for Greece to make; it can return to the market
at any time.”

“Typically (in cases like this), after about the first two
installments the market reopens,” he said.

That means Greece could return to the markets after the second
installment of loans, which will come mid-August.

“This does not imply that Greece accesses the market to top up the
loan,” the official said. “It accesses the market instead of the loan.”

DON’T EXPECT GREECE TO USE FULL E110B

In any case, he said, the architects of the E110 billion package
don’t expect the full amount to be used. They see Greece returning to
the markets as soon as its credibility is restored.

“I expect we will not need the whole amount,” the official said,
referring to the total package of E110 billion over three years. “This
is the maximum amount we expect Greece to need, this is a worst case
scenario.”

Other Commission sources said the total amount Greece was expected
to need over the three years of the plan was “around E150 billion,” but
that a large chunk of this would be raised in the markets after the has
plan rehabilitated the country’s credibility.

“We are not covering the entire financial needs of Greece,” a
second Commission official stressed.

“The programme will give Greece the basis for credibility. As the
credibility returns, the markets will reopen,” the first Commission
official said. In most programmes like this one, he said, the full
amount offered is not tapped.

“Rarely do we ever have to give the total amount, in most cases the
installments are paid back ahead of time,” he said.

NO MEMBER STATE WILL LOSE OUT

The structure of the deal means no Eurozone member state lending to
Greece will lose money, a third European Commission official

“Each member state raises its own loan, at its own cost, then lends
to Greece” at a fixed rate of around 5%, the official said.

If member states are making a profit on the loans, then that profit
belongs to the member state that loaned it, he said.

In the case that one country makes a loss, the official said, all
the other countries would pool their profits and pay the losing member
state back what it put in. The remainder of the pool would be split
between the member states along the same percentage lines as they
contributed.

“We will not allow any member state to make a loss,” the Commission
official said.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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