8/12/2019 Bruegel Think Tank Says Greece Needs New

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Bruegel Think Tank Says Greece Needs New €40 Billion Bailout(καλή σύνοψη της μελέτης)

Greece should get a new €40 billion bailout and the euro zone should be prepared to forego

interest payments from the government if if the country’s debt remains too high, economists at

a Brussels think tank argued on Thursday.

According to the paper published by economists at Bruegel, the additional easing of Greece’s

 bailout terms currently under discussion* would still leave Greece’s debt at 120% of gross

domestic product by 2022 –  far off the target of “substantially lower than 110%” that the euro

zone agreed with the International Monetary Fund in November 2012. By 2030, Greece would

have to issue some €74 billion in new bonds and still have a debt-to-GDP ratio of 95%.

And this calculation is based on a growth and budget performance that even the paper’s

authors  –  economists Zsolt Darvas, André Sapir and Guntram Wolff  –  concede is optimistic.

For their model, the three economists assumed that Greece would hit all targets for economic

growth and primary budget surpluses outlined in its bailout program. Since growth forecasts

only exist until 2018, they used a Consensus Economics forecast for Spain for the period after

that, while the long-term primary surplus was taken from an IMF study on successful fiscal

consolidations (more details on p. 6).

For Greece, that means a primary surplus of between 3.1% as well as nominal GDP growth of

3.7% from 2022 to 2030. In addition, Greece would have to be able to borrow on international

markets at an interest rate of just 2 percentage points above that of Germany.

The chances of all this happening over such a long period are pretty low, the three economists

warn. (In economist speak: “The baseline debt trajectory is exposed to risks, wh ich can easily

 jeopardize a more significant reduction in the debt ratio and may even put it on an escalating

 path.”) 

Changes to the baseline scenario, such as a 1-percentage-point drop in average annual growth

or primary surplus or a 1-percentage-point increase in market rates on Greek bonds, would

keep Greece’s debt close to 120% of GDP in 2030. That scenario would also require the

government to raise a whopping €145 billion on the markets, the paper says. 

Given this rather dire outlook, the Bruegel economists have come up with a plan for Greece’s

next bailout program:

8/12/2019 Bruegel Think Tank Says Greece Needs New

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1) An extra €40 billion in loans should keep Greece out of the market beyond 2030, as long

as it can keep a 4% primary surplus from 2022 onward and manages to raise the targeted €21

 billion from privatizations.

2) To kick-start growth, Europe needs to spend much more money investing in Greece, forstarters by boosting the capital of the European Investment Bank.

3) Crucially, however , the euro zone should be ready to forgive Greece all interest

payments on its bailout loans, should it fail to reach its debt-reduction targets despite

fulfilling all reform and spending promises.

The Bruegel economists argue that forgiving interest payments would be the “least

unacceptable” option for bringing down Greece’s debt. In contrast to an outright cut to the

 principal of Greece’s debt, or having the euro zone’s bailout fund take direct stakes in Greek banks, it would allow the euro zone to maintain pressure on Athens to meet its other program

targets.

Given that foregoing interest payments goes against the current rules of the euro zone’s bailout

funds –  and may raise concerns about monetary financing  –  those proposals should make for

interesting discussions between Europe and the IMF “after the summer.” 

The paper also modeled the debt sustainability of Ireland and Portugal and urges Lisbon to

seek a precautionary credit line when it exits its current bailout program in May. The

economists also warn that disappointing growth and higher spending could require Portugal’s

debt to be restructured in the future.

* That assumes that the maturities on Greece’s bilateral loans from other euro zone countries

will be extended to an average 50 years, and interest rates are cut to the benchmark 3-month

Euribor (far below the funding costs of most euro-zone governments). It also assumes that

Athens won’t have to repay any of the loans it received from the European Financial Stability

facility, the interim euro-zone bailout fund, until 2030.

 Ννκνπξα:

Α recent story by Bloomberg on OSI debt relief in the form of a 20-year maturity extension on

 bilateral loans (GLF) provided to Greece by EU countries and the EFSF/ESM mechanisms and a

50-basis point interest rate reduction on the EU bilateral loans has returned this old scenario tothe limelight.

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It is noted Greece received about 53 billion euros in bilateral loans from EU countries in 2010-

11. It is also expected to get a total of 144.6 billion euros from the EFSF from 2012 onward. It

may further include any new loan from the ESM to fill the 2014-16 financing gap. It should also be taken into account that the EU bilateral loans are amortizing in an almost straight line from

2020 to 2041 and the first repayment on EFSF loans will take place in 2023. The EFSF debt has

an average weighted maturity of 30 years.

But Nomura economist Dimitris Drakopoulos estimates this type of OSI, that is, the 20-year

extension of loans to 50 years, will have a very small impact on the sustainability of the Greekdebt in the next decade or so. In other words, it will barely affect the debt-to-GDP ratio of 124

 percent in 2020. However, it will start having a material impact beyond that date, reducing

Greece’s refinancing needs by roughly 4 billion euros per year in 2020-30 and lower the debt-to-

GDP ratio by an estimated 2.5 percentage points in 2030.

Moreover, the interest rate cut of 50 basis points –  one percentage point is equal to 100 basis

 points –  will only affect the EU bilateral loans of 53 billion euros. Greece is currently charged an

interest rate equal to three-month Euribor plus 50 basis points for these loans. Drakopoulos points out this half-a-point rate cut has already being incorporated in the DSA (Debt

Sustainability Analysis) as of November 2012, reducing Greek debt by about 1 percent of GDPin 2020. In other words, it has no effect on current DSA.

All in all, the debt relief in the form of a 20-year maturity extension on bilateral and EFSF/ESMloans combined with a half-a-percentage point reduction in the interest rate charged on bilateral

loans appears to have a very limited impact on the sustainability of Greek debt till early next

decade. Whether market participants, consumers and businessmen think this type of OSI resolves

Greece’s debt overhang remains to be seen. Nevertheless, it is a step in the right direction and agesture of good will to pro-reform political forces which the EU should not disappoint by

delaying the announcement until after the May elections.

Σενάρια για το ελληνικό χρέος 

Σύκθσλα κε ην ζρήκα ηο Eurobank αξνπζάνληα ηξία ζελάξα γα ηλ νξεία ηνπ ρξένπο, ην

Βαζό Σελάξν είλα ην Σελάξν αλαθνξάο (Baseline Scenario) ηνπ 2ΠΣΔΟ, ην 1ν Δλαιιαηό

Σελάξν δείρλε ηλ είδξαζ ζηλ νξεία ηνπ ρξένπο αό κα αιιαγή ηνπ ανισξζηή αό

ην -1,1% ζην -2,6% κόλν γα ην 2013, ελώ ην 2ν Δλαιιαηό Σελάξν πνέηε ανισξζηή

-2,6% γα ην 2013 α -2,0% γα ην 2014. 

Κα ζηο δύν εξηώζεο ην ρξένο ην 2020 είλα πςιόηεξν αό απηό ηνπ Βαζνύ Σελαξίνπ. Δλδεηά αλαθέξνπκε όη ζύκθσλα κε ην 1ν α ην 2ν Δλαιιαηό Σελάξν ην ρξένο ην 2020

αλακέλεηα ζην 126,0% α 128,7% ηνπ ΑΔΠ αληίζηνρα. 

Η ξόβιες ηνπ Βαζνύ Σελαξίνπ γα ην ρξένο ηνπ 2020 είλα 123,7% ηνπ ΑΔΠ. 

Ο δαθνξέο είλα κξέο αιιά εαξνύλ γα ηνλ εηξνραζκό ηο νξείαο ηνπ ρξένπο κε

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δεδνκέλν όη ζηλ αξαάλσ άζζ έρνπκε ανινπήζε ην κεηξναή δξόκν. Γελ αιιάμακε

α άιιεο αξακέηξνπο νπ α κνξνύζαλ λα εξεαζηνύλ αό ηλ ρεξνηέξεπζ ηνπ

ανισξζηή ηνπ ΑΔΠ (.ρ. εελδύζεο) ή δελ δαηξήζακε ηνλ ανισξζηή ζε

κεγαιύηεξα είεδα αό ηο ξνβιέςεο ηνπ 2ΠΣΔΟ γα εξίνδν κεγαιύηεξ ησλ δύν εηώλ. 

Σε άε εξίησζ κα ρεξνηέξεπζ ηνπ ανισξζηή α αηαζηήζε ηλ αλάγ γα κέηξα

ειάθξπλζο ηνπ ρξένπο αόκ ν εηαηή. 

Η εμαζθάιζ ηο ζηαδαήο αύμζο ηνπ ξσηνγελνύο ιενλάζκαηνο γα ηα εόκελα ρξόλα

α εζηξνθή ζε εηνύο ξπκνύο αλάηπμο κνξνύλ λα εηεπρνύλ κόλν κε ηλ

εθαξκνγή ησλ δαξξσηώλ κεηαξξπκίζεσλ, αηαιήγε αλάιπζ ηο Eurobank.

Καηά 26 δζ. επξώ ή 14% ηνπ ΑΔΠ α κεσεί ην ρξένο ηο Διιάδαο ζε όξνπο «ααξήο

αξνύζαο αμίαο» εθόζνλ εκπλεί δάξεα ησλ νκνιόγσλ ζε 50 ρξόλα, όσο ξνβιέε

ξόηαζ νπ βξίζεηα ζην ηξαέ, ζκείσζε ρεο η Deutsche Bank.

Διένλ, Διιάδα α εμννλνκήζε 264,5 εαη. επξώ ηνλ ρξόλν αό δαάλεο ηόσλ εθόζνλ

κεσεί α ην εηόν ησλ δαλείσλ αηά 0,5%. Η κείσζ ηνπ εηνίνπ α αθνξά κόλν ηαδκεξή δάλεα, νπ δόαλ κε βάζ ην ξώην Μλκόλν (52,9 δζ. επξώ), ζύκθσλα άληα κε

ηλ εξαηνύζα ξόηαζ νπ ζπηείηα. 

Σήκεξα ηα δάλεα απηά εβαξύλνληα κε ην εηόν Euribor ζπλ 0,5%, νόηε κείσζή ηνπο

αηά 0,5% ζνδπλακεί νπζαζηά κε κδελζκό ηνπ εξσξίνπ έξδνπο ησλ δαλεζηώλ. 

Τα δάλεα EFSF ηνπ δεύηεξνπ Μλκνλίνπ, ύςνπο 133,6 δζ. επξώ, έρνπλ κέζ σξίκαζ 30

ρξόλα, ελώ ηα δκεξή, ύςνπο 52,9 δζ. επξώ, έρνπλ κέζ σξίκαζ 17 ρξόλα.