New debt sustainability rule for Greece
The measures that will be used in the new Greek debt adjustment are now taking shape. Kathimerini understands that the new criterion that will determine the sustainability of Greece’s debt has almost been decided and it will be that the annual spending on servicing the debt should not exceed 15 percent of the country’s gross domestic product.
On Thursday European officials told Reuters that eurozone governments appear ready to reduce the cost of Greek debt servicing to 15 percent of the annual Greek GDP in the long term. “It is now widely accepted,” a eurozone official stated, adding that, “There is consensus now that this is the way to go.”
This adjustment will only be made if the new government meets the requirements provided for in the latest bailout agreement during the first assessment of its application this fall.
The sustainability rule for the national debt to be up to 120 percent of GDP has now been cast aside. “For Greece, this does not make sense, since it does not reflect grace periods, ultra-low interest rates and long maturities, which keep the cost of debt very low – lower than, for instance, in Germany,” a second eurozone official told Reuters.
For 2015, the cost of debt servicing is estimated at around 11 percent of GDP, while for the next few years it is seen at between 6 and 10 percent of GDP. However, from 2023 onward the rate will rise above 15 percent due to the end of the grace period for the payment of interest. A eurozone official said yesterday that the threshold of 15 percent of GDP will allow the country to return to the markets as private investors will feel more secure in the long run.
In this context, Kathimerini understands that the new measures under examination include extending the repayment time of the loans from the European Stability Mechanism in the second and third bailouts, possibly from 20 to 50 years. The grace period for the payment of interest to the ESM may be extended by another 10-20 years, and the interest rates could be amended, although the eurozone is rather hesitant on this.
