Greece's Creditors Publish Stark Debt Analysis as Syriza Faces Bail-out Rebellion
Lenders voice 'serious concerns' about Greece's huge debt mountain, which is projected to only get back to a sustainable level in 2030
By Szu Ping Chan5:27PM BST 1
3 Aug 2015
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 in the early hours of Friday 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.
However, the analysis also showed that a deeper recession in Greece and slower growth would push debt to 207pc of GDP next year and 186pc by 2020.
Even under a high growth scenario where Greece doubles its expected revenues from privatisations, debt to GDP is estimated to fall to 166.1pc by 2020 and only get down to the 120pc in the middle of the next decade.
The document did not mention the debt sustainability analysis published by the IMF last month which called for a 30-year moratorium on repayments in order to give Greece a chance to recover.
Alexander Stubb, Finland's finance minister, was more optimistic that a deal could be reached on Friday. “Things are looking much better right now. We have indicators that the Greek government is more serious now. The path towards recovery has started. It is going to be long but we have weathered the worst of the storm," he said.
Greece's surprise second quarter growth figures mean that the country expanded at a faster pace than the UK in the second quarter, which grew by 0.7pc.
Jonathan Loynes, an economist at Capital Economics, described the data as a "pleasant surprise".
"We have no breakdown at this stage. But monthly retail sales figures suggest that stronger household spending - perhaps in anticipation of capital controls - may have contributed to the expansion," he said.
New car sales jumped by 47pc in April, suggesting Greek households pulled their cash out of banks and ploughed it into other goods and services. Sales in July fell 24pc.
However, detailed data showed nominal Greek gross domestic product (GDP) fell by 0.7pc over the period, implying that the rise in real growth was driven by deflation.
"The implication is that prices fell quickly in the second quarter of the year, by about 1.5pc," said Jamie Murray, an economist at Bloomberg Intelligence. "One possible narrative around the numbers is that the threat of capital controls and their subsequent introduction may have prompted some unusual behavior.
"Greeks reportedly began paying off tax liabilities, possibly judging that their deposits might disappear but that their liabilities might not. By extension, the same incentive may have prompted
some Greeks to make more purchases than they otherwise would have done.
"If that story holds water, one might expect a weaker outturn in subsequent quarters –- the real activity might have simply been shifted form one quarter to another. The trouble is that the unexpected increase in the volume of output was offset by a fall in prices, leaving nominal GDP lower."
Mr Murray said the fall in nominal GDP would make Greece's already huge debt pile worse.
"Since it is nominal spending flows upon which tax receipts depend, this might be bad news for the public finance and, consequently, for Greece’s ability to service it’s debts," he said.
By Szu Ping Chan5:27PM BST 1
3 Aug 2015
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 in the early hours of Friday 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.
However, the analysis also showed that a deeper recession in Greece and slower growth would push debt to 207pc of GDP next year and 186pc by 2020.
Even under a high growth scenario where Greece doubles its expected revenues from privatisations, debt to GDP is estimated to fall to 166.1pc by 2020 and only get down to the 120pc in the middle of the next decade.
The document did not mention the debt sustainability analysis published by the IMF last month which called for a 30-year moratorium on repayments in order to give Greece a chance to recover.
Alexander Stubb, Finland's finance minister, was more optimistic that a deal could be reached on Friday. “Things are looking much better right now. We have indicators that the Greek government is more serious now. The path towards recovery has started. It is going to be long but we have weathered the worst of the storm," he said.
Greece's surprise second quarter growth figures mean that the country expanded at a faster pace than the UK in the second quarter, which grew by 0.7pc.
Jonathan Loynes, an economist at Capital Economics, described the data as a "pleasant surprise".
"We have no breakdown at this stage. But monthly retail sales figures suggest that stronger household spending - perhaps in anticipation of capital controls - may have contributed to the expansion," he said.
New car sales jumped by 47pc in April, suggesting Greek households pulled their cash out of banks and ploughed it into other goods and services. Sales in July fell 24pc.
However, detailed data showed nominal Greek gross domestic product (GDP) fell by 0.7pc over the period, implying that the rise in real growth was driven by deflation.
"The implication is that prices fell quickly in the second quarter of the year, by about 1.5pc," said Jamie Murray, an economist at Bloomberg Intelligence. "One possible narrative around the numbers is that the threat of capital controls and their subsequent introduction may have prompted some unusual behavior.
"Greeks reportedly began paying off tax liabilities, possibly judging that their deposits might disappear but that their liabilities might not. By extension, the same incentive may have prompted
some Greeks to make more purchases than they otherwise would have done.
"If that story holds water, one might expect a weaker outturn in subsequent quarters –- the real activity might have simply been shifted form one quarter to another. The trouble is that the unexpected increase in the volume of output was offset by a fall in prices, leaving nominal GDP lower."
Mr Murray said the fall in nominal GDP would make Greece's already huge debt pile worse.
"Since it is nominal spending flows upon which tax receipts depend, this might be bad news for the public finance and, consequently, for Greece’s ability to service it’s debts," he said.
No comments:
Post a Comment