This Great Graphic comes from Bruegel. It shows the trajectory of the Greece's debt to GDP ration over until 2030 under different scenarios, drawing on some of the components from the agreement struck at the start of the week.
The details have been sparse at best and the deal itself will not be finalized for a couple of weeks (Dec 13). The German parliament will take it up tomorrow and once again Merkel will rely on support from the opposition Social Democrats to ensure passage.
Much hope is put in the bond buy backs. It is understandable why. If the EFSF loans Greece 10 bln euros and Greece uses those funds to buy bonds at 30 cents on the euro, Greece will experience a net 20 bln euro reduction in its debt and experience some savings on debt servicing costs.
The rub, however, lies at the core. If the European official efforts succeed, the price of the Greek bond should increase, especially after the next couple of years. Why should an investors cash in now ?
This suggests that only those that "have to" will participate in what is said is a voluntary program. The likely candidates are not foreign investors, but domestic institutions, including government pensions and insurance companies. The government would appear to have greater leverage over them then say foreign hedge funds, for example.
Lastly, as we have argued before, the debt/GDP ratio is not just about the numerator (debt), it is also a function of the denominator (GDP). The Troika has done a simply horrific job forecasting Greek GDP. When the Greek economy stabilizes, maybe a 2014 or even a 2015 story, its debt burden will lighten.