Eurobank Ergasias S.A.
20, Amalias Avenue & 5, Souri Street, GR-105 57, Athens, Greece
Eurobank Ergasias: How far apart are the official creditors in their positions towards Greek public debt?
Summary of views & key findings
- The study presented herein constitutes an update of a relevant analysis we presented in “Greece: How much relief is actually needed to restore public debt sustainability”, Eurobank Economic Research, May 5, 2017. It draws on a range of scenarios for Greek public debt that were reportedly discussed at the Eurogroup meeting of 22 May 2017 as well as a number of earlier official documents
- The study focuses on the divergence of the views between the IMF staff and the European institutions on the future evolution of Greece’s gross financing needs (GFN) and the size of the medium- and long-term debt relief that is needed to restore debt sustainability i.e., ensure that the Greece’s GFN does not exceed 15% of GDP after 2018 and for the medium and 20% afterwards
- It attempts a replication of the debt sustainability analyses (DSAs) that are understood to have been constructed by the IMF and the European institutions, based on a number of simplifying assumptions made by the author to make up for some important information pieces that are missing from the relevant official documents
- A key takeaway from the analysis that relates to the ongoing discussions between the European creditors and the IMF on the issue of Greek public debt can be summarized as follows: the views of the two sides on a) the baseline macroeconomic assumptions underlying their respective Greece DSAs; and/or b) the scope of the medium- and long-term debt relief that is required to restore Greece’s debt sustainability should converge more substantially, to arguably facilitate the Fund’s financial participation in the present programme
- Importantly, the scope and modalities of the existing debt relief framework (agreed at the Eurogroup of May 2016) may not be adequate to fully restore the sustainability of Greek public debt under significantly more downbeat macroeconomic assumptions, such as those currently assumed by the IMF; that is, unless the aforementioned framework is implemented in its most radical and far-reaching form
- In support of the aforementioned, we note that a significant part of debt relief implied by the existing medium- and longterm framework is projected to come from the targeted reprofiling (maturity & grace period extensions of, as well as lower interest rates on) the EFSF loans disbursed to Greece in the context of the 2nd bailout; and this, without incurring any additional costs for former programme countries or to the EFSF
- On the other hand, the existing framework does not envisage any interventions in/reprofiling of the remaining package of EU loans to Greece (GLF facility & ESM)
- However, the package of outstanding EFSF loans to Greece constitute c. 60% of all EU loans disbursed thus far and just c. 50% of all EU loans that are expected to be disbursed until the completion of the present programme (all in notional terms)
- The baseline of all these is that the scope of the existing medium- and long-term debt relief framework would probably need to be further extended (by e.g. envisaging a significant reprofiling of all EU loans disbursed to Greece) if debt sustainability were to be accommodated under significantly more adverse macroeconomic scenarios, such as the one currently assumed by the IMF
Further information here