Athens, December 11, 2015/Independent Balkan News Agency
By Spiros Sideris
The results of the recapitalisation of the domestic banking system indicate lower financing needs and improve the dynamics of the Greek public debt from previous estimates, according to the conclusions of a study of the Directorate of Economic Analysis and Research of International Markets of Eurobank.
The writing of the report was edited by Dr. Plato Monokrousos, Chief Economist of the Eurobank Group. The study shows, among other things, updated forecasts for the evolution of borrowing requirements and funding sources of the General Government, updated viability analysis of the Greek public debt, and analysis of the major conditions for the stabilization of the country’s fiscal position in the mid-term.
Under the current macroeconomic scenario, the smaller financing needs by the official sector for the completion of the recapitalisation of the domestic banking system indicate significant streamlining of the expected financing needs of the General Government in the new three-year support program. Specifically, whereas the initial estimates of the program provided for new borrowing from the European Mechanical Stability (and possibly from the IMF) totaling EUR 84.1 bn for the period August 2015 – August 2018, the analysis of Eurobank indicates that this lending could happen at significantly lower levels (ie. approximately EUR 65 bn). Indeed, the return of profits (accrued and future) in Greek government bond portfolios held by the ECB and central banks of the Eurosystem could further reduce the aforementioned financing (up to a total amount of approximately EUR 8 bn approx.).
The confirmation of the above estimates, it is noted in the study, requires no significant deviations from the program objectives for the primary balance and the revenue from the privatisation program. In addition, it is noted that while according to the initial estimate of the current program, the completion of the new recapitalisation of the domestic banking system would require lending by the official sector amounting to EUR 25 bn, the financing ultimately drawn from the European Mechanical Stability (ESM) for the recapitalisation of the four systemic banks amounted to only EUR 5.43 billion.
Yaking into consideration the above and the revised (improved) provision for the shrinkage rate of Greece’s GDP in the second half of this year and 2016, the analysis points out, inter alia, the following:
– At the level of General Government, the total expenditure in 2016 for the service of the Greek public debt, apart from treasury bills, is expected to show a significant decline compared to the current year and stand at EUR 12.8 bn. Specifically, the third quarter of next year is expected to be the most “demanding” in relation to the total amount to be paid for the repaiment of interest and amortisation (5.2 billion approx. EUR).
– The total gross financing needs of the General Government in the next five years are expected to reach about EUR 75 bn, with the years 2017 and 2019 to be the most “demanding” in relation to the respective estimated costs of repaying interest and amortization of the greek public debt.
– Our revised forecasts for the long term evolution of government debt – GDP ratio (under the current macroeconomic scenario) is as follows: 181% at the end of 2015, 163.1% in 2020 and about 111% at the end of 2030. It is noted that the above Forecasts are improved (ie. lower) by 10 to 15 percentage points compared to the initial estimates of the new rescue plan (August 2015).
The study also presents revised estimates of the potential impact of a theoretical relief package of Ggeek government debt, which includes inter alia a further significant extension of means maturity years of European loans the country received (or will receive) under the three successive adjustment programs, and a grace period on interest repayments and amortisation of the total of such loans.
In summary, providing a relief package of Greek public debt with the above characteristics could potentially make the Greek public debt sustainable, in accordance with the new definition of sustainability, according to which the average annual expenditure of general government should not exceed 15% of GDP over the med-term.
A further arrangement of the existing interest rate on all or part of European loans (ie further reduction and/or conversion from floating to fixed) would contribute decisively to ensure the sustainability of the greek public debt, since unanticipated future increases in interbank interest rates Euribor and/or interest rates with which ESM support mechanism borrows from the markets could cause a significant increase in the expenditure of Greek government to repay interest (up to EUR 15 bn cumulatively the next 50 years, for each increase of 0.25 percentage points to above interbank rates from 2020 onwards).
Finally, it is noted again that the return of the greek economy to growth is the most important prerequisite for the stabilisation of its fiscal position in the med-term, as for each nominal GDP growth the debt-GDP ratio falls by 1.8 points (taking into account the current level of that ratio and assuming all other factors constant), and an average annual nominal growth rate of 2.7% of Greek GDP is required in the next 10 years to prevent the automatic increase of the debt-GDP ratio (“snowball” phenomenon), assuming all other factors constant.