The European Commission expresses serious concern over the sustainability of the Greek debt in an analysis attached to its report on the completion of the second bailout review.
Brussels joined the International Monetary Fund in asking for additional measures to lighten the national debt so as to render it sustainable. The Commission refers to the need for measures that would build on the conditions and commitments included in the Eurogroup decisions on May 25 and June 15.
That attachment to the compliance report, revealed on Tuesday by Bloomberg, stresses the need for extensions to bond maturities and the grace periods for the premium and the interest; it also calls for the return of the profits of national central banks from the Greek bonds they held.
The Eurogroup decision provides for Greece’s gross funding needs to stay up to 15 percent of the country’s gross domestic product in the medium term and up to 20 percent in the long term for the Greek debt to be deemed sustainable.
According to the Commission’s debt sustainability analysis, the baseline scenario takes the gross financing needs to 17.5 percent of GDP this year, before dropping significantly below 15 percent to reach 9.5 percent of GDP in 2022. They climb again after 2030 but stay within the limit, reaching 20 percent of GDP in 2045 and 20.8 percent of GDP in 2060.
That baseline scenario is based on the condition that the primary surplus averages at 2.2 percent of GDP throughout the period after 2022 – until then it should be at 3.5 percent of GDP, as the Eurogroup decision recently dictated.
The adverse scenario sees the national debt soaring from the mid-2030s, reaching up to 241 percent of GDP in 2060. In this scenario the gross financing needs exceed 20 percent of GDP as of 2033 and reach a mind-boggling 56.6 percent of GDP in 2060. The conditions for this scenario are a primary surplus of 1.5 percent of GDP between 2023 and 2060 with the growth rate averaging at 2.7 percent in the same period.