BoG: Post-bailout is a new program


The Bank of Greece views the country’s debt as sustainable in the medium term after the Eurogroup decision of June 22. However, it stops short of certainty as regards its long-term sustainability, arguing that the key for that is in continuing the fiscal consolidation and reform effort for a long period, and in the Eurogroup committing to further debt easing measures should unfavorable conditions arise.

The Monetary Policy report that Governor Yannis Stournaras submitted to the parliamentary speaker on Monday notes a series of factors that could put long-term sustainability at risk: the primary budget surpluses, interest rates and the rate of economic growth.

One change in the baseline parameters related to the above factors and the debt will be knocked beyond the sustainability limits.

Concerning the primary surpluses, the report argues that “no country in the world, with the possible exception of oil-producing countries, has ever achieved such high surpluses for such a long period.”

Through the report Stournaras defended his position in favor of the precautionary credit line and indirectly criticized the government for its overtaxation and the excessive primary surpluses that have allegedly been produced at the expense of growth.

He went on to ask the European Central Bank to reach a favorable conclusion regarding the continuation of the waiver on Greek bonds – which overrides the ban on junk-rated debt from being used for drawing liquidity – after the bailout program ends.

His argument is that the planned enhanced surveillance and the conditionality of the debt relief measures cover Frankfurt’s requirements, allowing it to decide in Greece’s favor.

In effect Stournaras argues that the post-program status is tantamount to a program, so the ECB could maintain the waiver that requires a program if a country’s bonds are not investment-grade.

Furthermore, given the debt sustainability, Greece could enter the ECB’s bond-buying program too.

The report foresees 2 percent growth this year, rising to 2.3 percent in 2019.