Last Update: 09:51
The EU says that Greece will need more debt relief in order to win the trust of investors, even though it’s likely to exit its rescue program with a 9 billion euro cash buffer, according to a Bloomberg report.
According to a European Commission draft report obtained by Bloomberg, when Greece’s bailout program ends in August 2018, there will be 27.4 billion euros left unused from the original 2015 agreement for 89 billion euros of rescue funds, based on the commission’s estimates in the so-called “compliance report” dated June 16. Disbursements up to then should also “cater for the build-up of a sizable cash buffer” of around 9 billion euros, according to the document.
The report contains an analysis of the country’s public debt that points to potential disagreements with the International Monetary Fund. The Fund has only agreed “in principle” for last week’s disbursement of the 8.5 billion euros loan tranche, as the Washinghton-based organization continues to express “serious concerns regarding the sustainability of Greek public debt.”
The IMF hasn’t disbursed funds to Greece in almost three years and is reluctant to further contribute financially to the country’s rescue. The Fund insists that European creditors should offer more debt easing before it gives out new loans.
According to the report obtained by Bloomberg, the June 15 Eurogroup deal “commits to capping gross financing needs at 15 percent of GDP for the medium term, and 20 percent thereafter. The country’s gross financing needs will drop to 9.3 percent of gross domestic product in 2020 from 17.5 percent this year, before rising again and surpassing 20 percent after 2045, according to the baseline scenario of the commission’s debt sustainability report.”
The conclusion of the report points to the need for “additional debt-mitigating measures,” even under the baseline assumptions. “An appropriate combination of debt management measures,” including an “extension of maturities and grace periods for principal and interest,” is necessary to “bring Greek debt back to a sustainable level in gross financing needs terms,” commission staff said.
According to the European Commission, the report continues, the baseline scenario is based on nominal GDP growth rates between 3 and 4 percent until 2060, considerably higher than previous IMF baseline estimates. The fund’s own assessment will be released before its executive board meets to approve the in-principle stand-by arrangement in July.
In the most adverse scenario, the debt dynamics “become explosive” from the mid-2030s, when Greece’s gross financing needs exceed 20 percent in 2033, reaching 56 percent by 2060, while debt skyrockets to 241.4 percent of Greek GDP by 2060.
“Debt sustainability, and thus the need for additional debt measures, should be assessed in a manner that caters for a number of downside risks,” the commission report says. “There is uncertainty surrounding the capacity of the Greek government to sustain high primary surpluses over several decades. In addition, there are significant downside risks to growth linked to aging populations and trends in total factor productivity,” the Bloomberg report concludes.