The International Monetary Fund now expects Greece’s debt to reach 129% of the country’s gross domestic product in 2020, three people with direct knowledge of a draft debt-sustainability analysis put together by the fund said on Sunday.
That is even further above the level most economists consider sustainable than previously thought, making it more difficult than ever to argue that the country can ever repay its debts.
Despite this, a number of signs last week had indicated that there was still enough political will in the euro zone to go ahead with a new, enhanced rescue package.
The fund is proposing four options for Greece’s official lenders to bring the ratio down toward the 120% level that was thought of as “sustainable” in the last debt-sustainability analysis put together in October.
Euro-zone finance ministers will discuss the draft at a special meeting on Greece on Monday. The ministers are expected to decide whether Athens qualifies for a €130 billion ($171 billion) second bailout loan that would keep it from defaulting.
The options envisaged by the IMF include allowing Greece to capitalize accrued interest on the bonds now held by private creditors. These bonds are set to revert to the Greek government under a massive debt swap under which investors will receive new bonds worth only half as much.
The second option is to cut the interest rate on an existing €110 billion bailout loan.
The third option is ask euro-zone central banks to tender the Greek bonds they hold as investments—estimated at around €12 billion—in the debt restructuring.
Under the fourth option, the European Central Bank would forgo the profit it would otherwise make on around €45 billion to €50 billion Greek in bonds it bought in the open market in 2010-2011.
The draft analysis says the first and second options would trim the country’s debt by 1.5 percentage points of GDP each, the third by 3.5 percentage points and the fourth by 5.5 percentage points.
It also says that Greece’s debt-to-GDP ratio for 2011 is now estimated at 164% from 162% earlier.
“The IMF is looking for a combination of the options that would lead towards the 120% debt-to-GDP target by 2020. But it’s not known how many of those options will be adopted by the finance ministers on Monday,” one of those people said.
He said IMF Managing Director Christine Lagarde told senior fund executives on Friday that it is imperative for all lenders—private banks, euro-zone governments, euro-zone central banks, the ECB and the IMF—to be involved in slashing Greece’s debt. However, Ms. Lagarde didn’t specify the IMF contribution.
(source: Dow Jones)
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