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Greek Debt Viability Trajectory Worse than Expected

The sustainability of the Greek debt over time is one of the major issues tackled by world economists and a new report by the EU Commission shows that it’s projected trajectory is worse than originally calculated.
The report by the European Commission, obtained by Bloomberg, was compiled before last Friday’s Euro Working Group meeting, in which the eurozone’s deputy finance ministers examined the course of Greek reforms and fiscal discipline measures agreed under the country’s bailout programme.
According to the commission’s baseline scenario, Greece’s debt-to-GDP ratio is expected to reach 181.1 % in 2017, 165 % in 2020, 127.2 % in 2030 and 96.4 % in 2060, forecasts that are slightly higher than what was projected at the end of the last review in June.
The slightly worse debt trajectory underscores the likelihood that a final debt-sustainability analysis at the end of Greece’s program will confirm the need for further re-profiling of Greece loans, especially if economic growth lags.
It is also expected to renew the fire under speculation by European economists of a sort of preemptive support line after the end of the Greek bailout which, according to EU officials, has to be proposed by the Greek government before officially being put on the table.
That’s because in its analysis, the EU Commission raises questions about whether the foreseen size of Greece’s cash buffer should be reassessed, with the planned 10.2 billion-euro cushion only covering financing needs of less than 10 months following the end of Greece’s bailout.
A cash buffer of 17 billion euros would cover financing needs for one year after the end of the bailout, while 20.3 billion would fully cover financing needs until the end of 2019, and around 30 billion euros until the end of 2020, the Commission report concludes.
The IMF has a long standing feud with the EU Commission and European leaders like the former German Finance minister Wolfgang Schaeuble over Greek debt sustainability, with the Fund all but demanding debt relief measures, claiming that with its current course and the ailments of Greek economy, the country’s debt is unsustainable.
Source: Bloomberg

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