#Greece #debt & #stress test analysis by imf

Not so attractive the borrowing cost in a current negative environment in terms of S-T. Forward Borrowing from the market is assumed at an average maturity of 5 years and average nominal interest rate of 6¼ percent for the next several decades. Imagine what premium should prevail in a corporate level! !

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the drop in Greek multifactor productivity since it joined EU

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The central issue is that public debt cannot migrate back onto the balance sheet of the private sector at rates consistent with debt sustainability, until debt-to-GDP is much lower with correspondingly lower risk premia. simply not reasonable to expect the large official sector held debt to migrate back onto the balance sheets of the private sector at rates consistent with debt sustainability.

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Therefore, it is imperative for debt sustainability that the euro area member states provide additional resources of at least €36 billion on highly concessional terms (AAA interest rates, long maturities, and grace period) to fully cover the financing needs through end–2018, in the context of a third EU program. One option for recovering sustainability would be to extend the
grace period to 20 years and the amortization period to 40 years on existing EU loans and to provide new official sector loans to cover financing needs falling due on similar terms at least through 2018.
Real GDP growth of about 1 percent would still require strong assumptions about labor market dynamics and structural reforms that yield TFP growth at the average of euro area countries. In such a scenario, Greece’s debt would remain above 100 percent of GDP for the next three decades. If the medium-term primary surplus target were to be reduced to 2½ percent of GDP, say because this is all that the Greek authorities could credibly commit to, then the debt-to-GDP trajectory would be unsustainable even with the 10-year concessional financing assumed in the previous scenario. In such a case, a haircut would be needed, along with extended concessional financing with fixed interest rates locked at current levels. A lower medium-term primary surplus of 2½ percent of GDP and lower real GDP growth of 1 percent per year would require not only concessional financing with fixed interest rates through 2020 to cover gaps as well as doubling of grace and maturities on existing debt but also a significant haircut of debt, for instance, full write-off of the stock outstanding in the GLF facility (€53.1 billion) or any other similar operation.

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