The European Commission on Wednesday released its assessment on a Greek plan for the new ESM bailout program. A day after the IMF released its report on the sustainability of the Greek debt and its estimation that Greece would need an extensive write-off of its debt from EU official creditors, the EC made public its position on the Greek debt.

The European body’s assessment refers to a necessity of a restructuring but not a “hair-cut”. The report goes on to say that this restructuring will be feasible only under the condition that Greece implements structural reforms demanded by creditors.

The report, which was drafted in conjunction with the ECB on July 10, has been revised to reflect the negative outcome of the recent events. It projects that the debt to GDP ratio-in a good case scenario- will amount to 165% in 2020n and 150% in 2022, while in the worst case scenario it is expected to reach 187% in 2020 dropping to 176% in 2022!

The commission believes that the debt can be addressed through the implementation of large scale reliable program of reforms and a determination by the Greek authorities to truly believe in these changes! The reports forecasts a deep recession between 2-4 per cent for 2015 compared to its April predictions of a slight positive growth rate between 0.5 % and 1.75%.

The document underlines that political uncertainty in the first half of 2015 derailed the fiscal adjustment program, something that had already been visible in the second half of 2014. The funding needs of the Greek banks have increased dramatically, says the report, while revenue from privatization is expected to be less, with an optimistic scenario forecast speaking of 10 bln euros in revenue through privatization until 2022. of It should be noted that the IMF reports estimates that the debt to GDP ratio could reach as high as 200%!

German response

In the wake of the report, the German finance ministry said that restructuring Greece’s debt by extending maturities was an option, whereas it again ruling out a haircut on the face value of Greek debt.

Ministry spokesman Martin Jaeger said the possibility “technically exists,” but added that this must not amount to a haircut by the “backdoor”.

“That is certainly an element that one can consider, but it will not be the solution if it leads to a significant reduction in the cash value (of the debt) as then we would in the end have nothing other than a debt haircut via the backdoor,” he said.