Greece has already received debt relief from its eurozone creditors equal to half of its 2013 GDP in net present value terms, the eurozone bailout fund said in its annual report, noting Greek public debt was now high but sustainable.
Greece has made debt relief a key demand in its negotiations with international creditors on what reforms it must implement to secure further funding. Without new loans it will default and, possibly, be forced to exit the euro currency.
But eurozone governments have argued Greece’s debt is sustainable, provided the country implements agreed reforms.
The report from the European Stability Mechanism (ESM) said that after various modifications made to the original terms of bailout loans over the last years, Athens had minimal payment obligations until 2023.
“From a Greek perspective, the debt relief measures taken by its European creditors provide a substantive benefit in fiscal space and overall payment profile,” said.
Greek debt is at 175 percent of its gross domestic product.
“It cannot be argued that the debt level is unsustainable by merely looking at the aggregate nominal debt to GDP ratio,” the ESM said.
“A proper sustainability analysis must consider the structure of Greek debt. Payment obligations over the years until 2023 are minimal. Thereafter, the repayment is stretched out over several decades which, combined with favourable lending rates, results in an overall high but sustainable debt – provided that Greece continues its reform agenda,” it said.
The bailout fund said that Athens received debt relief equal to 49 percent of the country’s 2013 GDP in net present value (NPV) terms.
The NPV approach discounts the difference between the future cash flows of the loans benefiting from lower financing costs and debt relief measures and the cash flows of the same loans had they not benefited from the relief measures.
Greece is borrowing money from the bailout fund at 1.35 percent — a lower rate than many eurozone countries. This is also almost three times cheaper than borrowing from the International Monetary Fund, which charges 3.6 percent.
Before the crisis, Greece was able to borrow on the market at around 5 percent, the ESM said.
The average weighted maturity of the eurozone loans to Greece is 32.5 years and no interest or principal has to be paid back before 2023.