Greek debt sustainable in most scenarios, even worst does not require a haircut

[June 26, 2015]  BERLIN (Reuters) - Greek debt will not fall to the targets set out by creditors in 2012 because the country did not implement the agreed reforms, but it is still sustainable under two of three analyzed scenarios, a debt sustainability analysis showed.

The analysis, prepared for euro zone finance ministers to help their financing-for-reforms discussions with Athens, says that even in the worst scenario, the lenders would not have to write off any loans.

Under a 2012 bailout agreement, Greece was to reach a debt-to-GDP ratio of 124 percent in 2020 and in 2022 a debt-to-GDP ratio substantially lower than 110 percent, down from 175 percent now.

"It is clear that the policy slippages and uncertainties of the last months have made the achievement of the 2012 targets impossible under any scenario," the analysis, seen by Reuters, said.

"The main factors behind the deterioration of the

Debt Sustainability Analysis are the worsening of economic growth, the revised primary balance path, the lower

privatization revenues and possible additional financial needs for the banking sector," it said.

Under the revised forecast and the most optimistic scenario that Athens implements all reforms, Greek is debt to fall to 124 percent only in 2022 from 172.8 pct in 2015.

If it implements the reforms only partially, Greek debt will fall only to 135 percent in 2022 from 174.3 pct in 2015.

In the worst case, which the International Monetary Fund sees as its "baseline", which means most likely, Greek debt would fall only to 142.2 percent in 2022 from 176.7 percent in 2015.

The analysis stresses however, that focusing on the debt-to-GDP ratio does not give an accurate picture of debt sustainability and that this is better reflected by gross financing needs of a country.

Measured like this, Greece has no sustainability problem in any scenario, but would require help to improve the sustainability, via for example an extension of maturities, under the third, least favorable option.

"This gross financing need metric points to no sustainability issues under the first two scenarios," the document said.

"The gross financing needs remain well below 15 percent threshold, a threshold mentioned in IMF guidance for

this criterion. Under this scenario, significant reprofiling of the stock of debt and concessional lending terms would improve sustainability," it said.

"Reprofiling of payment flows does not imply nominal

haircut or budgetary costs for creditors. This would also entail further NPV gains for Greece, and strengthen the sustainability of the Greek public debt in the long-run."

(Reporting By Matthias Sobolewski, writing by Jan Strupczewski; editing by Robert-Jan Bartunek)

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