The Hague – It is doubtful whether Greece will under present circumstances ever be able to pay off its gigantic state debt, according to a confidential report which was leaked to the European press.
The Greek parliament approved the government’s austerity policy and economic reforms – forced by European institutions – in the early hours of Friday morning. If the institutions are satisfied, €86bn will flow to Athens during the next three years.
But the institutions which negotiated with the Greeks (the European Commission, the European Central Bank and the European Stability Mechanism) have warned the eurozone group of governments in a report that this would mean Greek debt would grow to 201% of its gross national product (GNP) by next year.
By 2020 it would be reduced to 166% and 148% by 2022 – if the economy grows satisfactorily.
If things go less well, the state debt would equal 207% next year, 186% in 2020 and 173% in 2022. This would mean that Greece would have to reserve 12% of its GNP in the years up to 2030 to service the debt, and more than 15% in the years thereafter.
Partial pardon may be in the pipeline
Greece is clearly unable to carry this burden, the report says. And therefore, there is no alternative to “debt amelioration” measures. Specifically mentioned is “a suitable combination of longer redemption times and interest free periods”.
This conclusion is politically sensitive. Leading European politicians, like German Chancellor Angela Merkel and Dutch Prime Minister Mark Rutte, have hitherto brusquely refused suggestions that Greek debt be partially forgiven. They were, however, prepared to talk about making the payments easier to handle.
Nevertheless, the report is implicitly supportive of the International Monetary Fund’s (IMF's) refusal to participate further in the negotiations unless there is a partial pardon for the Greeks. This is a huge headache for Merkel, as she originally insisted that the IMF be brought on board.