20 February 2012

Reuters: Greek debt load may get heavier, eurozone study says

Greece will need additional relief if it is to cut its debts to 120 per cent of GDP by 2020, and if it doesn't follow through on structural reforms and other measures, its debt could hit 160 per cent by 2020, an analysis conducted by the IMF, European Central Bank and European Commission shows.

"The results point to a need for additional debt relief from the official or private sectors to bring the debt trajectory down", said the report, which is being discussed by eurozone finance ministers. "There is a fundamental tension between the programme objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term", says the report, dated February 15.

"In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatisation implementation). This would result in a much higher debt trajectory, leaving debt as high as 160 per cent of GDP in 2020. Given the risks, the Greek programme may thus remain accident-prone, with questions about sustainability hanging over it", it said.

The analysis cautioned that Greece may not be able to implement all the necessary changes quickly enough. "The Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline", it said. "The debt trajectory is extremely sensitive to programme delays, suggesting that the programme could be accident-prone, and calling into question sustainability", it said.

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