Brussels, 13/07/2015 (Agence Europe) - Over the next three years, Greece needs more than €80 billion in financial aid and the path of Greek debt currently observed has clearly deviated compared with that prescribed in the second aid plan that has now run out, say the 'institutions' (European Commission, ECB and IMF) in their analysis of the country's economic situation which served as the basis for the discussions of the eurozone summit during the night of 12-13 July.
In their analsysis of Greece's financial needs, the 'institutions' calculated that over three years, Greece needs €81.7 billion (€53.7 billion would reportedly be for servicing the debt and €25 billion for recapitalising the banks, including €10 billion to be made available immediately). The 'institutions' note that the IMF has still not disbursed €16 billion as part of its aid plan to Greece. The IMF, however, can no longer proceed to payments without Greece first settling its arrears (€1.6 billion).
Among the potential sources of financing, the 'institutions' note that the ECB's SMP and ANFA programmes for repurchasing sovereign debt bonds have generated €7.7 billion in profits that can be transferred to Athens. This results in a total financing shortfall of €74 billion (or €78 billion according to the IMF).
By 20 July, Greece's immediate needs in liquidity will stand at €7 billion, including €4.2 billion to the ECB, nearly €2 billion to the IMF (€1.6 billion due on 30 June and €450 million due this Monday), and €500 million to the Bank of Greece. As priority creditor, the IMF will have to be reimbursed first.
To reimburse this €7 billion due in July, Greece requires bridge financing. Three options are reportedly on the table: using the profits from the SMP operation, using bilateral loans, or using part of the €13 billion envelope that is still available in the European Financial Stabilisation Mechanism (EFSM) - a mechanism managed by the Commission on behalf of the EU. In order to use the EFSM, a qualified majority is needed at the Ecofin Council. The UK and Poland would reportedly be opposed, and other delegations have also expressed reservations.
Conditionality. The challenge of the weekend for the Greeks was to win back the trust of the creditors. The eurozone thus expected concrete pledges from the Greek authorities. By 15 July, certain prior measures will have to be approved at the Greek Parliament in order to enable the formal launch of negotiations on a third aid plan. According to the Eurogroup document given to the eurozone summit, it would be a case of certain measures linked to the VAT system, measures intended to improve the long-term sustainability of the pension system, measures linked to the independence of the Greek institute of statistics (Elstat), and the transposition of the BRRD directive framing the bank restructuring and resolution procedures.
Debt sustainability - towards abandoning objectives in terms of debt to GDP ratio? The debt sustainability analysis (DSA) carried out by the 'institutions' (of which EUROPE has obtained a copy) reveals the difficulty of the task. Set in November 2012 as part of the second Greek bailout plan, the objectives to reach were a debt to GDP ratio of 124% in 2020 and subtantially below 110% in 2022. Now, the most optimistic forecasts of the 'institutions' put this ratio at 165% of GDP in 2020, 150% in 2022, and 111% in 2030. In the least optimistic scenario, Greek debt would reach 187% of GDP in 2020, 176% in 2022 and 142% in 2030.
The DSA will be “a big problem”, Slovakia's finance minister, Peter Kazimir, tweeted on Saturday. Estonia has already warned: 'yes' to more flexible conditions for reimbursement of the debt, 'no' to a dry cut. This issue should of course only be discussed later in the year, but the 'institutions' are already underlining an important aspect.
“Focusing exclusively on the debt to GDP level does not allow capturing the structure of debt and is not accounting entirely for the measures taken by the European financial support to make Greek debt sustainable. This aspect can be better assessed by the gross financing needs of a country, which captures its payment structure over time”, explains the DSA. The 'institutions' add that as part of the debt to GDP ratio, it is also difficult to determine concrete thresholds for this measure, above which the debt is no longer deemed sustainable. This argument had been expressed earlier by ESM managing director, Klaus Regling.
A note from the IMF, says the DSA, suggests that the gross fiancing needs to GDP ratio should remain below 15% in order to ensure the debt sustainability. The most optimistic scenario of the 'institutions' forecasts that the financing needs over the 2015-2030 period are on average 10.4% and above the 15% threshold in a number of years. In the least optimistic scenario, this ratio will be 13.1% over the 2015-2030 period.
The 'institutions' thus advocate “a very substantial re-profiling” of the Greek debt, such as a “long extension of maturities of existing and new loans, interest deferral, and financing at AAA rates which would allow to cater for these concerns from a gross financing requirements perspective, though they would still leave Greece with very hight debt to GDP level for an extended period”. On the eurozone side, the possibility is not ruled out that the objectives in terms of financing needs in relation to GDP be substituted for objectives in terms of debt to GDP ratio. On the Greek side, it is also said that it would be necessary to act on servicing the debt. (Elodie Lamer)