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Thursday 14 November 2019

Greece's creditors publish stark debt analysis as Syriza faces bail-out rebellion

A European Union (EU) flag, left, flies beside a Greek national flag in front of the Parthenon temple on Acropolis Hill in Athens, Greece, on Wednesday, July 8, 2015. Photographer: Yorgos Karahalis/Bloomberg
A European Union (EU) flag, left, flies beside a Greek national flag in front of the Parthenon temple on Acropolis Hill in Athens, Greece, on Wednesday, July 8, 2015. Photographer: Yorgos Karahalis/Bloomberg

Szu Ping Chan

Greece's debt inspectors have voiced "serious concerns" about the sustainability of the country's debt ahead of a vote on a third bail-out deal in Athens that is likely to cement a split within the government.

Analysis prepared by the country's European lenders projected that Greece's debt share would rise to 201pc of gross domestic product (GDP) next year.

Debt is only expected to fall to 175pc by the end of the decade, even if Greece implements all the terms of its €85bn (£61bn) rescue package and raises €13.9bn from a privatisation drive.

This means the country would not get its debt pile down to 120pc of GDP - which has long been viewed by the International Monetary Fund (IMF) as the target to get Athens back to a sustainable debt level - until 2030, two decades after the country's first bail-out.

 "The high debt to GDP and the gross financing needs resulting from this analysis point to serious concerns regarding the sustainability of Greece's public debt," the analysis said.

The analysis will put pressure on Berlin to commit to a write-off of Greek debt. However, the European Commission, European Central Bank and European Stability Mechanism (ESM) - the eurozone's rescue fund - suggested that concerns could be addressed without resorting to a nominal write-down.

German Chancellor Angela Merkel has already ruled-out a "classic haircut".

Handing Athens the profits made on Greek government bonds purchased by the ECB under the Securities Markets Programme (SMP) and rolling over bonds held by eurozone national central banks is expected to reduce debt by five percentage points, while a "combination of extension of maturities and grace periods for principals and interests would allow to bring Greece debt back to a sustainable level," the analysis said.

The IMF said on Thursday night that it continued to work “closely” with the Greeks to steady the country’s finances, adding that it “look[ed] forward to working with the authorities to develop their program in more detail and for Greece’s European partners to make decisions on debt relief that will allow Greece’s debt to become sustainable”.

Greek MPs were debating late into the night on terms agreed with creditors for a third bail-out to keep the country afloat. The measures include increases in the retirement age and new shipping taxes. More reforms will follow in October.

Panagiotis Lafazanis, the country's former energy minister, took a step towards breaking away from the ruling Syriza party on Thursday, announcing that he will help create a new, anti-bail-out movement.

“The struggle against the new memorandum starts now, by mobilising people in every corner of the country,” he said in a statement signed by 11 other Syriza members.

A number of Syriza MPs are expected to vote against a deal, which would raise pressure on prime minister Alexis Tsipras to call a snap election. However, an agreement is expected to be passed this morning with support from the opposition, paving the way for eurozone finance ministers to ratify a deal in an emergency meeting that afternoon.

Germany, Greece's biggest creditor, remains reluctant to rush a deal through and has called for Greece to be given a second bridging loan that would allow Greece to make a €3.2bn payment to the ECB on August 20.

A spokesman for the German government described a deal on Friday as a "desirable but not foregone conclusion". The spokesman said questions remained over the role of the IMF in a new bail-out, Greek debt sustainability and the country's asset sale fund.

The fund set out a timetable on Thursday for bids on a number of state assets, including an October deadline for binding offers for Piraeus port.

Thursday's analysis showed creditors expect the economy to shrink by 2.3pc this year as the impact of capital controls throws the economy back into recession.

Greece is forecast to shrink by 1.3pc in 2016, then grow by 2.7pc in 2017 and 3.1pc in 2018.

Official figures on Thursday showed the Greek economy delivered surprisingly strong growth of 0.8pc in the second quarter, following zero growth in the first three months of the year. Economists had expected the economy to contract by 0.5pc.

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