Reuters on Wednesday quoted a “confidential paper” prepared by European Stability Mechanism (ESM) which concludes that Greece will not need debt relief by European creditors if the country posts primary budget surpluses above 3 percent for 20 years.
The paper, seen by Reuters, was prepared for euro zone finance ministers and International Monetary Fund talks last Monday, which ended without an agreement due to diverging IMF and euro zone assumptions on future Greek growth and surpluses.
The leak from the ESM comes amid the ongoing impasse in the Greek program from standing disagreements between the IMF and Germany over the issue of debt relief for the bailout-dependent country.
A range of different scenarios were looked at in the paper, none of which offer any hope for the people of Greece who have once again are being sacrificed for the sake of the Merkel’s party winning the German Federal elections.
According to Reuters, the fanciful “scenario A” assumes no debt relief will be needed if Athens keeps primary surplus at or above 3.5 percent of GDP until 2032 and above 3 percent until 2038.
A second option under scenario A assumes Greece secures the maximum possible debt relief under a May 2016 agreement.
Greece would then have to keep its primary surplus at 3.5 percent until 2022 but could then lower it to around 2 percent until mid-2030s and to 1.5 percent by 2048, giving an average of 2.2 percent in 2023-2060.
According to Reuters, the European Central Bank argues that such long periods of high surplus are not unprecedented: Finland, for example, had a primary surplus of 5.7 percent over 11 years in 1998-2008 and Denmark 5.3 percent over 26 years in 1983-2008.
It is worth noting, in case the ECB and ESM economists have forgotten, that Denmark and Norway have very different economies to that of Greece. Finland’s economic boom was led by the electronics industry, up until the time of the demise of Nokia and the 2008 recession. Finland still has a highly industrialised, mixed economy with a per capita output equal to that of other western economies such as France, Germany, Sweden or the United Kingdom. It’s other exports include engines, tractors, wood and paper, and its unemployment rate at around 10% is close to EU average of 11%.
Denmark is not part of the eurozone. Denmark has one of the world’s lowest levels of income inequality, according to the World Bank. Its standard of living is average among the Western European countries and for many years the most equally distributed. The unemployment rate is at 6.2%.
Manufactured goods make 73% of Denmark’s exports and the rest is agricultural products. Denmark is a net exporter of food and energy and has since the 1990s had a balance of payments surplus.
The government in either of these two countries is not forced to squeeze the economy and overtax to pay back debts thus reducing the disposable income of its citizens and domestic demand.
And most important of all – Both countries stopped having surpluses in 2008 – the world recession had something to do with that.
All scenarios assume that there will not be another recession for at least another 21 years
Scenario A assumes uninterrupted average annual economic growth in Greece of 1.3 percent during the forecast period.
The IMF believes such economic growth and primary surplus assumptions are unrealistic in the case of Greece “where policy-making institutions are weak and productivity is low.”
Scenario B is built on the IMF’s assumptions of average growth of 1 percent and a return to a primary surplus of 1.5 percent from 2023 after five years at 3.5 percent. This sees Greek debt rising from 2022 and reaching 226 percent in 2060.
A third scenario, C, is a compromise between A and B, assuming average economic growth of 1.25 percent, a primary surplus of 3.5 percent until 2022, easing more gradually thereafter to averages 1.8 percent, rather than 2.2 percent in 2023-2060.
Under this scenario, Greek debt could be made sustainable with an extension of euro zone weighted average loan maturities by 15 years with the last loans maturing in 2080, the capping of interest on loans at 1 percent until 2050 and setting the amortization cap at 0.4 percent of Greek GDP.
From Reuters with additional information from Wikipedia
