A report on the sustainability of Greek debt was filed by the Commission at the ECOFIM last week, part of which reveals Bloomberg and probably hides several unpleasant surprises for Greece.
According to the baseline scenario the Commission has examined, the country’s gross financing needs will drop to 9,3% in 2020 from 17,5% expected this year. However, they will gradually increase from 2020 onwards and will exceed 20% after 2045, reaching 20,8% by 2060. It should be reminded, according to the Eurogroup decision last week, that mixed financing needs should be Will fall to 15% of GDP for some time, and then they should not exceed 20% of GDP by at least 2060.
Also, according to the Commission’s baseline scenario, the Greek debt will reach 176% of GDP this year, will decline to 159,9% of GDP in 2020 and will continue to decline by reaching 123,1% of GDP in 2030 and 91,6% of GDP in 2060. It is worth noting that even in this case the Greek debt will remain, after 2060, sufficiently higher than the 60% of GDP set by the Stability and Growth Pact!
However, it is worth considering more closely the unfavorable scenario -which in no case can be ruled out- presented by the Commission to the EU finance ministers.
On this basis, as the Commission notes, the Greek debt will “explode” in the mid-2030s, reaching the disastrous 241% of GDP in 2060!
Also, according to the unfavorable scenario, the gross financing needs will reach 20% in 2033 and rise to 56% of GDP in 2060!
However, the Commission also reserved a relatively good news for Greece, considering that at the end of the program the country would not have used ESM loan capital of 27,4 billion euros.
At the same time, the report says there is “significant concern about the dynamics of Greek debt”, while the Commission asks the partners to take additional measures towards a debt relief, always on the basis of the agreements that took place in the Eurogroup in May 2016 as well as in June 2017.
“An appropriate mix of debt relief measures (including short-term measures), extending payback time and applying a grace period to paying interest, can lead the gross financial needs to sustainable levels,” the report from the Commission notes.
At the same time, the Commission -which until now was supporting the government- does not hesitate to report that “there is uncertainty about the ability of the Greek government to maintain high primary surpluses for the next 10 years. There are significant risks that can lead to a decline in growth”.
The Greek government is required to set up a reserve of nine billion euros in order to finance its needs for about 10 months after the end of the program. Greece will have to cover 18,9 billion Euros in interest payments until August 2018, while the state will have to repay 6,5 billion Euros in debts to the private sector.
