Greece
will need far bigger debt relief than euro zone partners have been
prepared to envisage so far due to the devastation of its economy and
banks in the last two weeks, a confidential study by the International
Monetary Fund seen by Reuters shows.The updated debt sustainability analysis (DSA) was sent to euro zone
governments late on Monday, hours after Athens and its 18 partners
agreed in principle to open negotiations on a third bailout programme of
up to 86 billion euros in return for tougher austerity measures and
structural reforms.
"The
dramatic deterioration in debt sustainability points to the need for
debt relief on a scale that would need to go well beyond what has been
under consideration to date - and what has been proposed by the ESM,"
the IMF said, referring to the European Stability Mechanism bailout
fund.
The fund released the document on Tuesday in Washington after it had been seen by Reuters and other news organizations.
A
senior IMF official said late on Tuesday that the debt relief would
give Greece a chance to recover and would be needed if the fund was to
stay involved with any new Greek program.
"I
don't think this is a gimmick or kicking the can down the road," said
the official, who spoke on condition of anonymity. "This is a dramatic
measure to take the entire European stock (of debt) and reprofile it,"
so the country has a chance of "getting some growth back."
European
countries would have to give Greece a 30-year grace period on servicing
all its European debt, including new loans, and a very dramatic
maturity extension, or else make explicit annual fiscal transfers to the
Greek budget or accept "deep upfront haircuts" on their loans to
Athens, the report said.
It
was leaked as German Finance Minister Wolfgang Schaeuble disclosed that
some members of the Berlin government thought Greece would have been
better off taking "time-out" from the euro zone rather than receiving
another giant bailout.
IMF
Managing Director Christine Lagarde attended weekend talks among euro
zone finance ministers and government leaders that agreed on a roadmap
for a new bailout. An EU source said the new debt sustainability figures
were given to euro zone finance ministers on Saturday and were known by
the leaders before they concluded Monday's deal with Athens.
The
IMF study said the closure of Greek banks and imposition of capital
controls on June 29 was "extracting a heavy toll on the banking system
and the economy, leading to a further significant deterioration in debt
sustainability relative to what was projected in our recently published
DSA".
European members of
the IMF's executive board tried in vain to stop the publication of that
earlier study on July 2 just three days before a Greek referendum that
rejected earlier bailout terms, sources familiar with the discussions
told Reuters.
Greek
Prime Minister Alexis Tsipras and his former finance minister, Yanis
Varoufakis, seized on the IMF study as vindicating their argument that
the proposed bailout was unsustainable and that Greece was right to
demand debt relief.
The
latest IMF study said Greek debt would now peak at close to 200 percent
of economic output in the next two years, compared to a previously
forecast high of 177 percent.
Even
by 2022, the debt would stand at 170 percent of gross domestic product,
compared to an estimate of 142 percent issued just two weeks ago.
Gross
financing needs would rise to above the 15 percent of GDP threshold
deemed safe and continue rising in the long term, the updated IMF study
said.
Moreover,
the latest projections "remain subject to considerable downside risk",
meaning that euro zone countries might have to provide even more
exceptional financing.
In
the laconic technocratic language of IMF officialdom, the report noted
that few countries had ever managed to sustain for several decades the
primary budget surplus of 3.5 percent of GDP expected of Greece. As soon
as Athens had swung into a small surplus before debt service last year,
the government had failed to resist political pressure to ease the
target, it noted.
The IMF
study also appeared to challenge the assumption by some European
officials that Greece will be able to meet some of its financing needs
from the markets in 2018.
"Borrowing
at anything but AAA rates in the near term will bring about an
unsustainable debt dynamic for the next several decades," it said.
(Reuters)