ESM confidential document describes three scenarios for Greek debt

According to Reuters citing an ESM confidential paper, three different scenarios on Greece’s debt sustainability were discussed during Monday’s Eurogroup without however reaching an agreement.

Τhe paper was composed for EZ finance ministers and the IMF ahead of a Eurogroup meeting last Monday, which had been forecast to conclude with an agreement over the Greek bailout. However, nothing concrete was decided.

The Scenario A assumes primary surplus at or above 3.5% of GDP until 2032 and above 3% until 2038, average annual economic growth of 1.3% during the forecast period; under these assumptions, no debt relief would be needed, while Greece’s GFN would be at 13% of GDP until 2060 and debt-to-GDP ratio would settle at 65.4% in 2060. A second option under this scenario assumes Greece secures the maximum possible debt relief under a May 2016 agreement (i.e. an extension of average weighted loan maturities by 17.5 years from the current 32.5 years, with the last loans maturing in 2080, the limit of Greek loan repayments to 0.4% of Greek GDP until 2050 and the capping of the interest rate charged on the loans at 1% until 2050, and the buy back in 2019 of the €13bn that Greece owes to the IMF). Greece would then have to keep its primary surplus at 3.5% until 2022 but could then lower it to c2% until mid-2030s and to 1.5% by 2048, giving an average of 2.2% in 2023-2060. Note that the IMF believes such economic growth and primary surplus assumptions are unrealistic.

The Scenario B is built on IMF΄s assumptions of average growth of 1% and a return to a primary surplus of 1.5% from 2023 after 5 years at 3.5%; under these assumptions Greek debt would rise from 2022 and reach 226% in 2060, while GFN will rise above the 15% ceiling, exceeding 50% in 2060. To make Greek debt sustainable under the IMF assumptions, the euro zone would have to give Greece higher debt relief than it conditionally offered in 2016 — something that member states reject.

The Scenario C is a compromise between A and B, assuming average economic growth of 1.25%, a primary surplus of 3.5% until 2022, falling gradually thereafter to average 1.8% in 2023-60. Under this scenario, Greek debt could be made sustainable with an extension of euro zone weighted average loan maturities by 15 years, the capping of interest on loans at 1% until 2050 and setting the amortization cap at 0.4% of GDP.

Source: capital.gr