Business World

Thursday 21 September 2017

Greece 'cannot pay debts and will need more help'

Luke Baker

GREECE is unlikely to be able to pay what it owes and will need a further writedown of its debts, three EU officials said yesterday, a cost that would have to fall on the European Central Bank and eurozone governments.

The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund (IMF) officials who have been assessing the country's progress on reaching its fiscal targets as part of its EU/IMF and ECB bailout.

Inspectors from the troika returned to Athens yesterday and will complete their debt-sustainability analysis next month, but the sources said the conclusions were already becoming clear.

It means Greece's official- sector creditors -- the ECB and eurozone governments -- will have to restructure some of the estimated €200bn of Greek government debt they own if Athens is to be put back on a sustainable footing.

However, there is no willingness among member states or the ECB to take such dramatic action at this stage.

"Greece is hugely off track," one of the officials said. "The debt-sustainability analysis will be pretty terrible."

Another official pointed to the latest growth estimates from Athens, which show the economy contracting by 7pc this year rather than the 5pc previously forecast, meaning that the debt burden is only increasing in relation to GDP.

"Nothing has been done in Greece for the past three or four months," said the official, referring to the delays caused by the two elections held since May.

"The situation just goes from bad to worse, and with it the debt ratio," they added.

Under the terms of the second bailout agreement struck with the EU and IMF in February, Greece committed itself to further spending cuts and tax increases in exchange for a €100bn reduction in its debts.

The restructuring involved private-sector owners of Greek government bonds accepting losses of up to 70pc on their holdings with the aim of reducing the debt ratio from 160pc of GDP to below 120pc by 2020 -- a level the IMF has deemed sustainable in the long term.

Targets

But Greece is significantly far off reaching that 2020 goal, the officials said. One estimated that the overshoot could be up to 10 percentage points, equivalent to about €30bn.

As a result, the IMF could decide to pull out of the second bailout programme, having already said that further missed targets would not be acceptable. That would leave eurozone member states and the ECB to bear the cost alone.

In that case, the only way to keep Greece afloat and in the eurozone would be for the ECB and member states to write off some of the Greek debt they own, or change the terms to give Athens ever more time to pay back at lower interest rates.

"This has not been explored yet, politically, because no one wants to launch that discussion," the first official said. "The political feasibility of carrying out an official-sector restructuring is very complicated."

"The political dynamics are really going against the economic dynamics," one said. "The economic arguments may be clear -- we need to restructure Greece's debt if it is to be sustainable -- but, politically, there's no willingness." (Reuters)

Irish Independent

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