Business World

Thursday 23 November 2017

Debt Crisis: Eurozone bailout founds not enough as new €15bn hole found in Greek finances

Greek Prime Minister Lukas Papademos
Greek Prime Minister Lukas Papademos

Louise Armistead

INTERNATIONAL debt inspectors believe they have found another €15bn black hole in Greece’s public finances caused by the deepening recession, delivering the crippled nation another devastating blow.

With pressure growing over talks with private investors about the terms of a €100bn debt write-off, officials calculated that to bring the country’s debts to a sustainable level at 120pc of GDP the international community would need to find an extra €15bn, raising the prospect of a Greek default.

Sources told news organisations in Brussels that weak growth will make it even more difficult for Greece to resolve its debt problem, leaving the eurozone and the International Monetary Fund with the prospect of an even larger bail-out than the €130bn planned.

The warning came as the Organisation for Economic Co-operation and Development (OECD) said the emergency bail-out funds are not big enough.

The international think-tank said the European Financial Stability Facility’s (EFSF) €440bn firepower “is not enough” to support the lending requirements of indebted countries, particularly given that it “has not found it easy to raise funds with low yields”.

Greece, Portugal, Italy, Ireland and Spain need to repay a total of €700bn this year and €400bn next year.

The EFSF’s replacement, the European Stability Mechanism (ESM), will have €80bn of capital and a combined lending power of €500bn. “This too may not be enough,” the OECD said, adding that “further thought will need to be given to contingency plans”.

The OECD argued that the “only plausible mechanisms” were to give the EFSF a banking licence; to allow the European Central Bank (ECB) to lend funds to the IMF to distribute; or to see if “sovereign wealth funds could be cajoled with appropriate guarantees [possibly via the IMF] to provide the funds”.

Meanwhile, Jean-Claude Juncker, head of the Eurogroup, said he believed the measures from Monday’s EU summit were “largely insufficient”.

Separately, Angela Merkel, the German Chancellor, held talks with the Chinese premier, Wen Jiabao, in Beijing, who raised hopes that China could contribute to the eurozone bail-out fund if the area makes necessary reforms. However, Mr Jiabao said: “Europe must rely on itself, reduce its debt load and introduce structural reforms.”

Spain and France cheered investors with successful bond auctions at lower yields than previous weeks. But Ireland’s central bank cut its growth forecasts for 2011 and 2012.

In January, another 177,470 more Spaniards joined the jobless . Unemployment now stands at 4.6m, or 22.9pc.

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