Athens, July 13, 2015/ Independent Balkan News Agency
By Spiros Sideris
The main conclusion of the IMF analysis is, as is well known, that the Greek debt is unsustainable. But there are other parameters-bombs in detail the Fund’s 24-page report. And the findings corrode the already poor and monotonous argument of Berlin on debt sustainability.
In its report of May 2014 the IMF estimated that the public debt of Greece was coming back on a path towards sustainability, while it was still very vulnerable to shocks. However:
“Significant changes since then in Greece policies, such as lower primary surpluses and weak reform efforts for development and privatization create new financing needs. Added to the already very high existing debt, these requirements make the dynamics of debt unsustainable. To ensure its sustainability, the policies of Greece should return to the right course, but also, maturities of existing European loans should be extended considerably”.
That is, the Fund strongly points the way to a debt extension and adds, also mentioning a haircut: “Further European funding should be given to similar favorable terms. If, however, the package of reforms from Greek side is weakened even more through less structural reforms and even lower primary surpluses, a debt haircut will be needed”.
In the last – fifth – evaluation on May 2014, the dynamics of the Greek debt were considered viable but vulnerable. The ratio was estimated to fall from 175% of GDP in 2017 to 128% in 2020 and 117% in 2022. Given, of course, that Greece would constantly produce primary surpluses of 4% per year and valid reform and privatization applications.
If the program had been implemented as agreed, no further debt relief would have been required, according to the framework in November 2012. Given the lower interest rates, if the main objectives of the program were still achievable, the debt to GDP ratio would have been reduced even further at 116.5% of the GDP in 2020 and 104.4% in 2022.
Nevertheless, Greece was once again faced with increasing financial needs, which are estimated in the Fund’s report to approximately EUR 50 billion from October 2015 to 2018. The demands for new European money will be at least EUR 36 billion over a period of these three years: “Only by lowering the targets for primary surpluses to 1% in 2015, 2% in 2016, 3% in 2017 and 3.5% in 2018, the further needs will be EUR 13 billion”.
In the area of privatizations, the program estimated EUR 23 billion for the period 2014-22, although in the revision of July 2011 EUR 50 billion were predicted just by the end of 2015. The revenue, however, was 3.2 bn, that is 94% below the target: “None of infrastructure (airports, ports, railways) included in the portfolio of the remaining privatizations have been sold. In the fifth revision the amount was revalued downwards to EUR 23 billion. In the time that passed, the only income was only EUR 400 million. And from these three quarters came from the mobile frequency auction”.
With the new figures, the calculations are formed at about EUR 500 million over the next three years. This estimate is based on the results of privatization so far and future prospects. This alone raises, according to the IMF, by EUR 9 billion the financing needs of the country in relation to the previous report.
The calculations of the Fund for the development are based on the full and determined implementation of structural reforms. This is the only way, argues the IMF, that development can rises to 2%. Such a rise, however, contradicts the actual ongoing performance of Greece. Since 1981, when Greece joined the EU, the real GDP growth was an average 0.9% per year. The IMF wonders “how will the constant growth rate of 2% be maintained?”.
As regards the financing needs from now on, for the period October 2015 – December 2018, there are estimated at EUR 52 billion. Of these, two thirds will be contributed by Greece’s partners in the eurozone:
“Assuming that there will be an official favorable financing until the end of 2018, the debt ratio is estimated at 150% of GDP in 2020 and to 140% in 2022. Against this background, a haircut of around more than 30% would be required to meet the standards of the debt targets as defined under the November 2012”.
But the IMF speaks of further compromises: “If the objectives for growth and primary surpluses are to be lowered, according to the new Greek policy package, the serving of the debt will become harder and the ratio will rise to unsustainable levels. Given all these very vulnerable dynamics of debt, further concessions are deemed necessary”.
As an illustrative example, the IMF mentions an option for existing loans from the EU. The Fund requests to extend the grace period to 20 years and the payment of amortization to 40 years. In this scenario, the objectives of November 2012 for the debt/GDP ratio would not be achievable, but the gross financing needs of Greece would be reduced by an average 10% of the GDP for the period 2015-2045, a level that was the target of the latest restructuring.
It is obvious that most of the points made by IMF are thorns to the side of the Merkel – Schaeuble economic policy, which is also applicable to the Greek case.