EU OFFICIALS have called for the rapid release of an €8 billion loan to Greece and warned that the country’s increasing national debt has reached an “extremely worrying” level.
A new assessment of by officials in the European Commission and the European Central Bank sets the scene for EU leaders to impose bigger-than-anticipated losses on Greek creditors at a summit on Sunday and a hastily scheduled follow-on summit next week.
In preparation for these meetings, euro zone finance ministers gather today in Brussels to discuss the situation in Greece and other efforts to strengthen Europe’s response to the debt crisis.
The ministers will consider a joint study of Greece’s debt from the EU-ECB-IMF “troika”.
While that assessment was being finalised yesterday, a separate European Commission-ECB report questioned the sustainability of the country’s debt in stark terms. “Government debt dynamics remain extremely worrying. At the end of last year, the gross debt ratio exceeded 140 percent of GDP,” the report said.
“If fiscal consolidation and privatisation targets are respected, and growth responds to structural reforms, the debt ratio may start declining from 2013 onwards.
“However, the debt ratio will remain at very high levels, levels for many years, and would be vulnerable to adverse shocks.
“When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated, given delays in the recovery, in fiscal consolidation and in the privatisation plan, as well as the perspective of bank recapitalisations.”
Such findings are likely to strengthen the clamour to increase to about 50 per cent the 21 per cent losses foreseen for private Greek creditors when EU leaders agreed to provide a second bailout to the country in July.
The country’s position has worsened appreciably since then as recession deepens, making Germany and other euro zone countries reluctant to continue providing loans without an increased bondholder contribution.
The long-awaited EU report followed the troika’s latest review of the Greek rescue, which was suspended for weeks as the country’s international sponsors sought a new round of budget cuts and tax rises.
While highlighting a litany of problems in Greece’s execution of its bailout, the report said the country should receive its next tranche of aid. Athens has been warning for weeks that it will soon run out of cash, claims which were questioned by the EU authorities.
However, they now say there should be no further delay. The report said the new loan should be released “as soon as possible: as soon as the agreed prior actions on fiscal consolidation, privatisation and labour market reform, which were announced by the government, have been legislated”.
While this greatly increases the likelihood that EU leaders will agree this weekend to hand over the money, the board of the IMF is not scheduled to deliver its contribution until early next month.
The EU report said the contraction in Greek economic activity is substantially deeper than previously projected.