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FACTDROP: Rescue creditors: Greece may miss debt target


Rescue creditors: Greece may miss debt target

Πηγή: Todays Zaman
March 21 2012

Greece's international creditors see "significant risks" that the country might fail to bring down its debt burden within targets, meaning it would require more rescue loans.

In a document seen by The Associated Press on Tuesday, they say Greece's program of austerity measures and structural reforms "could be accident prone." "Authorities may not be able to implement reforms at the pace envisioned," said the report by the International Monetary Fund, the European Commission and the European Central Bank.

The Greek program could lower debt to 116.5 percent of GDP by 2020, but the minimum target set by the bailout creditors is 120.5 percent by 2020. On top of concerns that reforms are too slow, the Greek economy faces a grim outlook. It is in its fifth year of recession and would need to recover before debt reduction plans can have much effect. The Bank of Greece predicts the economy will contract another 4.5 percent in 2012 and remain in recession next year, while unemployment will surpass 19 percent on average this year. Overall, the bailout creditors' report sees a risk that the program would bring debt down to only 145.5 percent of GDP by 2020, even after taking into account losses accepted by private creditors. "Stress tests point to a number of sensitivities, with the balance of risks mostly tilted to the downside," said the report dated March, 11. "Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalization may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays," it reads.

Moreover, Greece is heading toward a general election in late April or early May, likely causing further delays to reforms. A new government might take also seek to change the terms of the bailout program. "It may take Greece much more time than assumed to identify and implement the necessary structural fiscal reforms," the document says. Revenue from selling state assets my also fall behind expectations "due to market-related constraints, encumbrances on assets, or political hurdles," it notes. "The debt trajectory is extremely sensitive to program delays, suggesting that the program could be accident prone," it said.

A debt level of more than 120 percent of economic output is often seen as unsustainable in the long term. As concerns rise over the country's ability to bring debt back down, investors drive its borrowing rates on bond markets higher. That eventually makes it too costly for the country to tap bond markets to finance its existing debt, requiring it to be bailed out - as happened to Greece, Ireland and Portugal.

Greece's Parliament approved the new international bailout deal early Wednesday. Eurozone countries finalized the deal last month, agreeing Greece would receive 130 billion euros ($171.6 billion) in new loans as well as the remainder unpaid from the first rescue deal, or about 42 billion euros ($55.4 billion). Lawmakers backing the coalition government of socialists and conservatives voted in favor of the new agreement, after the Communist Party staged nationwide protests against the deal.

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