Bruegel Think Tank Says Greece Needs New €40 Billion Bailout

by Gabriele Steinhauser

Wall Street Journal
February 20, 2014

Greece should get a new €40 billion bailout and the euro zone should be prepared to forego interest payments from the government if if the country’s debt remains too high, economists at a Brussels think tank argued on Thursday.

According to the paper published by economists at Bruegel, the additional easing of Greece’s bailout terms currently under discussion* would still leave Greece’s debt at 120% of gross domestic product by 2022 – far off the target of “substantially lower than 110%” that the euro zone agreed with the International Monetary Fund in November 2012. By 2030, Greece would have to issue some €74 billion in new bonds and still have a debt-to-GDP ratio of 95%.

And this calculation is based on a growth and budget performance that even the paper’s authors – economists Zsolt Darvas, André Sapir and Guntram Wolff – concede is optimistic. For their model, the three economists assumed that Greece would hit all targets for economic growth and primary budget surpluses outlined in its bailout program. Since growth forecasts only exist until 2018, they used a Consensus Economics forecast for Spain for the period after that, while the long-term primary surplus was taken from an IMF study on successful fiscal consolidations (more details on p. 6).

For Greece, that means a primary surplus of between 3.1% as well as nominal GDP growth of 3.7% from 2022 to 2030. In addition, Greece would have to be able to borrow on international markets at an interest rate of just 2 percentage points above that of Germany.

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Read the Bruegel paper