Last night history was made. Greece pushed the biggest restructuring in history managing to lift over €100bn off the shoulders of its people and its future generations. The PSI -Private Sector Involvement- has been a vital prerequisite to Greece’s second €130bn rescue package.
Here is a snapshot. Participation in the PSI was 85%. Since it exceeded the 75% threshold, the Greek government can (and probably will) trigger the CACs (Collective Action Clauses) reaching a staggering 95.7% participation (remaining 4.3% refers to non-Greek law bonds). Given a 53.5% of debt write-off on this €206bn privately held Greek debt, this translates into €110bn of debt unloading. Whichever way one looks at it, this is simply extraordinary.
But one also needs to look at the big picture. Today, Greek public debt stands at around 160% of GDP. The PSI along with the second rescue package aim at bringing it down to 120% by 2020. Now, this target is extremely sensitive to two main variables – GDP growth and debt/rescue packages, so don’t be surprised if the Troika revises its estimates upwards or downwards over the next years.
In reality, the PSI and the two bail-out funds, bought Greece extra time to materialize all the essential reforms this country so much needs to jump-start its economy. Remember that in Greece’s case, the first step to growth is to attract investments. Given the circumstances, there is no driver to boost private consumption as there is neither government money nor enough household savings (at least within Greece!). Foreign direct investment is the Alpha and the Omega to this puzzle. Greece needs to think and do big, now.
Now we have the time to do as promised. Make our country and economy investment friendly. Privatize under-performing state-owned firms, tackle bureaucracy and encourage entrepreneurship, open up closed professions that keep prices artificially high, but most importantly, change our mentality, think collectively, think long-term, think business-FRIENDLY. The ball is in our court now.