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EU Would Charge Greece More Than 6 Percent: Sources

Friday, 09 Apr 2010 03:27 PM

Greece would have to pay more than 6 percent to get emergency euro zone loans for up to three years and even more if the loan were to be for longer, euro zone sources said on Friday.

Euro zone sources with knowledge of the discussions on the subject held by deputy euro zone finance ministers and central bankers on Thursday and Friday said the rates at which Greece would be offered emergency loans were based on International Monetary Fund formulas.

"According to the calculations we were given, given current yield curves, the equivalent of the EU formula would be well above 6 percent," said one euro zone source said.

A second source confirmed the rate would be more than six percent. Both noted the calculations were complex, because they were based on a three-month Special Drawing Rights rate that needed to be converted to 3-year rates using swap rates.

According to the formula, there would also be an extra 300 basis points on top of the SDR rate and an additional 50 basis points service charge.
(One basis point is equivalent to 0.01%, or one-hundredth of a percentage point.)

For loans over three years' maturity, there would be an additional 100 bps penalty charge, the first source said.

The source said there were no amounts discussed at the meeting, and that it would be up to the European Commission and the European Central Bank to suggest an appropriate amount of loans, should Greece ever ask for assistance.

"It would be a substantial amount I guess, something sufficient to shock the market," the source said.

"Similarly as in the case of Hungary, when they were given so much money that speculators actually got burned and Hungary didn't actually use that money," the source said.

© 2015 Thomson/Reuters. All rights reserved.

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