February 20, 2012
A “strictly confidential” report on Greece’s debt projections prepared for eurozone finance ministers reveals that Athens’ rescue programme has veered off track and suggests the Greek government may need another bail-out once the second rescue agreed this week runs out.
The 10-page debt sustainability analysis, distributed to senior eurozone officials last week but obtained by the Financial Times on Monday night, finds that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of the new €170bn bail-out.
The report makes clear why the fight over the new Greek bail-out has been so intense in recent days. A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance since they received the report about the advisability of allowing the second rescue to go through.
A “tailored downside scenario” prepared for eurozone leaders in the report suggests Greek debt could fall far more slowly than hoped, to only 160 per cent of economic output by 2020 – far below the target of 120 per cent set by the International Monetary Fund. Under such a scenario, Greece would need about €245bn in bail-out aid, nearly twice the €136bn under the “baseline” projections.
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