Last month’s final review of Greece’s bailout program concluded with a debt deal, which according to Prime Minister Alexis Tsipras represents a “historic” agreement for Greece to become “a normal country” once again. But a Bank of Greece (BoG) analysis suggests that long-term economic recovery is by no means guaranteed.
The bank’s governor, Yiannis Stournaras, met with parliament speaker Nikos Voutsis on Monday morning, to hand over the BoG monetary policy report.
Its submission comes amidst a recent feud between Stournaras and the coalition government, with Greece’s top central banker having long called for an extra credit line from eurozone lenders in preparation for the country’s exit from the bailout program in August.
According to the BoG analysis, relief measures agreed with creditors at last month’s Eurogroup meeting can be expected to contribute to a smooth return to the markets, and helps render the country’s debt load sustainable in the medium term.
However, the report stated that the primary budget surplus targets the Tsipras government has committed to achieve during the period 2023-2060 are unfeasible.
“No other country in the world, with the possible exception of oil-producing countries, has ever achieved such large primary surpluses over such a protracted period of time. This assumption therefore constitutes the greatest risk in the analysis of long-term debt sustainability,” the central bank notes in its analyis.
The debt agreement compels Greece to run primary budget surpluses of 3.5 per cent of GDP until 2022, and 2.2 per cent of GDP on average from then onwards until 2060.
The report points to the country’s sustainable return to international sovereign bond markets as ‘the ultimate and definitive proof’ of economic recovery and warns that long-term debt sustainability requires maintaining fiscal and reform efforts, as well as further debt relief measures.
The assumption that high primary budget surpluses can be achieved, it also said, serve as a reminder that past policy mistakes responsible for the country’s debt will continue taking their toll on future generations.
The report estimates a positive growth outlook and achievement of fiscal targets for 2018 as a whole, but it also cited uncertainty for future growth prospects, due to a number of challenges threatening the transition to a “sustainable extrovert growth model”, among others high unemployment rates, collapse of investment and lareg stock of non-performing loans.
