Greek Debt Payments and the Eurozone Proposal
by Dimitris Rapidis and Jose Pereira
The discussion and negotiations on Greece's sovereign debt have not opened yet. There are many statements seeing the light from different sides and parts involved, but there are no signs for compromise amid the flanks of creditors. Economists from IMF state that the Greek debt is not sustainable and a restructure/relief is needed. Commissioner Pierre Moscovici repeats that after the first review of the Greek program, the discussion should officially open, while others from the European Commission, like Vice President Dombovskis, state that the EC should not interfere.
Beside statements with political nuances, data shows that the Greek debt is clearly unsustainable. The repayments and the servicing of the annual interests have to better address the current performance of the Greek economy and get adjusted to recession. For the period 2015-25, overall debt payments are expected to reach €212,7 billion, counting for more than 2/3 of the overall sovereign deb. In other words, to serve such payments, the Greek economy needs to tackle recession by the end of 2016, achieve goals of annual budgets every year, consistently produce primary surplus, and perform with more than 4,5% growth for the next 9 years. This is impossible or, to put this way, it is fiction.
Moreover, during last week, Eurogroup leader Jeroen Dijsselbloem came up with a ludicrous proposal. Claiming to represent Eurozone Ministers, he stated that "there seems to be a broad understanding that a good standard would be to have the cap at a maximum of 15% of GDP". In other words, if this proposal was to be put in force this year, Greece should pay €31,2 billion.
The "15%" proposal is another brick, added to the bigger structural problem of Eurozone: the lack of mutual understanding, the lack of vision, and the lack of a concrete policy to exit the crisis. It is also a strong proof that Greece's Eurozone counterparts are completely lost and fed up with the Greek case - and not without reason. Eurozone leaders should first resort to self-criticism, re-evaluate the goals, flexibility and feasibility of the bailout deal, before attempting to give "unique" characteristics to the Greek economy.
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Dimitris Rapidis is Director at Bridging Europe. Jose Pereira is Policy Analyst at Bridging Europe.
October 14, 2015