As unpalatable as it seems to euro zone policymakers, a sizeable
reduction in Greece’s debt load is necessary to make the country’s debt
sustainable in the long-term, according to a new report from Goldman
Sachs.
After investigating Greece’s debt sustainability, researchers at the bank have concluded that to reach the 120 percent debt-to-GDP target set by the International Monetary Fund (IMF) an official sector restructuring of Greece’s debt, worth over 80 billion euros, was necessary.
Read more: http://www.cnbc.com/id/49801433
After investigating Greece’s debt sustainability, researchers at the bank have concluded that to reach the 120 percent debt-to-GDP target set by the International Monetary Fund (IMF) an official sector restructuring of Greece’s debt, worth over 80 billion euros, was necessary.
The
authors of the report, economists Themistoklis Fiotakis, Lasse Holboell
Nielsen and Antoine Demongeot, note that the IMF’s target is “unlikely”
without such a “drastic debt stock reduction.”
“To
increase the likelihood that the Greek debt-to-GDP ratio approaches its
120 percent by 2020 target under realistic assumptions, a much more
drastic debt stock reduction (possibly north of 80 billion euros in
total) will be required,” the report states.
The
Goldman analysts are skeptical of current measures being considered to
help Greece —such as reducing interest rates on bilateral loans and a
buy-back program for restructured Private Sector Involvement (PSI)
bonds.
Instead,
they say that if Greece’s total debt burden of 340 billion euros isn’t
slashed, the euro zone faces years of funding Greece.
However, as Greece dominates the political and economic agenda in Europe, the appetite for further funding (let alone losses on Greek debt holdings) looks “politically unfeasible at present,” the authors state.
Read more: http://www.cnbc.com/id/49801433
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