Greece’s state debt amounted to 174.1 percent of gross domestic product in the first quarter of 2014 according to data released on Tuesday by Eurostat. Greece has the highest debt as a percentage of GDP in the 28-member European Union and its level highlights the need for an intervention to lighten it further.
However, what increasingly more people are arguing is that the size of the debt is not Greece’s biggest problem. What everyone should focus on now, they say, is how the Greek debt can be made sustainable – i.e. how to ensure that it will be serviced without a problem – and not whether it will undergo another haircut but without the certainty of its repayment.
This is the thinking of the Finance Ministry, which it has systematically promoted over the last year or so. It also mirrors the view of the European Stability Mechanism (ESM), which now holds the lion’s share of Greek debt. ESM head Klaus Regling said during his recent visit to Athens that no one should be concerned about the size of the Greek debt, stressing that what is paramount is the need to ensure its servicing and not a possible need for a new reduction. He added that Europe is not discussing another haircut.
At the end of 2013 – and the same holds true for the first quarter of this year – some 75 percent of Greece’s state debt was in the form of loans from the eurozone and the International Monetary Fund. After the completion of the PSI debt restructuring and the bond buyback program, the share of debt remaining in private hands has dropped to no more than 25 percent. This has brought the risk of a new restructuring close to zero.
In this context there are two main solutions currently being examined in a bid to make the debt sustainable. The first concerns the extension of the maturity period for loans from the eurozone to 50 years, while the second provides for turning the interest rates of the loans of the first bailout agreement in 2010 from floating to fixed, as this would secure Athens a significant reduction in its future expenditure on interest that Greece will have to cover to the countries of the eurozone. The latter, however, appears difficult for the eurozone to accept.