Reuters — Greece’s public debt can be manageable, the euro zone bailout fund said on Sunday, responding to a leaked report by the International Monetary Fund that the country’s debt will explode to 275 percent of GDP by 2060.
A spokesman for the bailout fund, the European Stability Mechanism (ESM), said the path for Greek public finances agreed between Athens and the euro zone was credible and backed by contingency measures in case of unforeseen events.
“We believe that Greece’s debt burden can be manageable, if the agreed reforms are fully implemented, thanks to the ESM’s exceptionally favourable loan conditions over the long term and the recently adopted short-term debt relief measures,” the ESM said.
There remain only a small number of ‘reforms’ as agreed in the third bailout programme that have not yet completed by this government and they concern further labour legislation reforms, and privatisation of the remainder of the distribution network (ADMIE) of the public power company (PCC). However, these actions would have no demonstrable impact to the level of national debt reducing it near enough to a level that will make it sustainable.
So far in the programme, all Greek assets were be transferred to a new fund, which was meant to contribute to the recapitalisation of the country’s banks. The fund is based in Athens, not Luxembourg as Germany had originally demanded. The amount of revenue from the assets was once again over estimated.
Greece passed measures to “improve long-term sustainability of the pension system” which meant further cuts to pensions. retirement age was raised to 67
VAT and other taxes were increased
Greece passed legislation to introduce “automatic spending cuts” if it deviates from primary surplus targets. If the government cannot cut enough to balance the books, it should cut some more.
Legislated to reduce the value of Non Performing Loans within an agreed timeframe
Agreed to the 3% primary surplus targets
Has not filled a number of substantive post vacancies in the public sector thus reducing the number of public sector employees, which includes teachers, medical staff, police and fire officers
Not completed:
Greece’s labour markets were to be liberalised. Notably, Athens was required to “undertake rigorous reviews and modernisation of collective bargaining and industrial action” to standards of labour protection below those provided in other EU countries. And opening up (in practice) more of the closed professions
Greece has been told to get on with privatising its energy transmission network operator (ADMIE).
In an IMF report the Fund calculated that Greece’s debt load would reach 170 per cent of gross domestic product by 2020 and 164 per cent by 2022. But it would become explosive thereafter and grow to 275 per cent of GDP by 2060, the FT quoted the report as saying.
The ESM spokesman said, however, that the euro zone had promised to offer Greece additional debt relief if Athens delivers on all its reform promises.i
“As a result, we see no reason for an alarmistic assessment of Greece’s debt situation,” the spokesman said.
The IMF has long been calling for substantial euro zone debt relief for Athens, but Germany, which faces elections this year, has been strongly opposed to such a move until after 2018, when Greece is to finish all its promised reforms.
Euro zone governments want the IMF on board, but do not seem to be ready to provide the debt relief to Greece that is necessary for the Fund to join.
The IMF wants Greek government to take additional measures worth in excess of 4 bln euro if the present targets are not reduced.
The IMF also wants additional banking sector reforms to tackle a huge mountain of non-performing loans and exposures (NPLs and NPEs) strangling the credit sector, as well as reform of Greece’s antiquated bankruptcy code and the replacement of bank board of directors.
