Greece Needs Another 80 Billion Euros

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.

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