Athens Faces Threat Over Lack of EU Debt Relief

The International Monetary Fund has warned eurozone nations they must give Greece more long-term debt relief so the country is able to finance itself. The analysis comes as a huge blow to both the European Union and Athens as they planned to end the country’s extensive bailouts.

Greece was preparing to return to the international capital markets after it has been reliant on loans from the EU governments for eight years, CNBC reported.

IMF bosses have responded by saying “the risks are tilted to the downside”.

The international body has calculated that Greece’s long-term debt costs will not be sustainable in 20 years’ time due to the high budget surplus targets that are demanded by European creditors.

The IMF said without more debt relief measures, Greece “could struggle to maintain market access over the long run”.

The economic crisis resulted in the Greek economy shrinking by more than a quarter.

But the IMF said EU governments would have to provide more debt relief to maintain investor confidence in the country. The body calculated that Greece’s debt costs will “begin an uninterrupted rise” after 2038 to reach about 20% of the country’s GDP.

The IMF’s mission chief for Greece, Peter Dolman said: “We would prefer these targets to be lower. “We have doubts they can achieve the target while growing at the rate expected and needed to bring down debt.”

The IMF report on Greece said: “The debt relief recently agreed with Greece’s European partners has significantly improved debt sustainability over the medium term, but longer-term prospects remain uncertain.

“Staff are concerned, however, that this improvement in debt indicators can only be sustained over the long run under what appear to be very ambitious assumptions about GDP growth and Greece’s ability to run large primary fiscal surpluses, suggesting that it could be difficult to sustain market access over the longer run without further debt relief.”

The economy is expected to grow 2% this year and 2.4% in 2019 but will slow to 1.2% in 2022.

In the long term, the IMF report said, population ageing will further hinder economic activity.