The powerful international bank lobby Institute of International Finance (IIF) hasĀ warned that Greece’s newly revamped bailout program still faces large risks as long as the economy continues to contract sharply, with more austerity measures expected to make it even worse.
“With real GDP likely to decline another 4-5 percent next year after falling 6 percent this year, and further austerity testing social cohesion, risks to the EU-IMF program will remain substantial,” the IIF said.
“Doubts about debt sustainability will persist until growth resumes and government debt is reduced to a more palatable level,” it said in a new global economic forecast. “Continued deterioration in economic conditions restrain (Athens’) ability to meet fiscal targets.”
The IIF, which was deeply involved in arranging Greece’s private sector $134 billion debt writeown in March, raised the warning days after Athens completed a debt buyback of 31.5 billion euros ($41.6 billion) that was crucial to the recast the rescue program from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB.)
Greece is locked in its fifth year of recession, with its economy, under the pressure of severe government austerity policies, expected to shrink 6.5 percent in 2012. According to the new deal reached with its official creditors, Athens was given more time to cut its debt load, now at 170 percent of GDP, with the aim of reducing it to 124 percent by 2020 and to 110 percent the following year, targets which many analysts doubt can be met.
The IIF said even that level is too high. “The debt sustainable level in Greece is not 120 percent, it’s not 110, it’s so much lower,” said IIF chief economist Philip Suttle. Greece will have difficulty finding new lenders to back up the IMF and EU in sustaining it, he said. “It seems to us that there is no private sector debt money that is going to be forthcoming to sit behind the official sector.”
For all that, the IIF earlier this year agreed that its members would take 74 percent losses on its holding of Greek bonds and investment in Greece and has said little about it until now, as Greece this week is expected to get 34.4 billion euros ($45.5 billion) in a first series of rescue loans from the Troika over the next few months.
(Source: AFP)
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