By Tasos Dasopoulos
The Commission returns to the logic of primary surpluses, to reduce the Greek debt, after confirming its viability provided that the economy will achieve for the next 37 years, an average primary surplus of 2.6% of GDP.
In its debt sustainability report included in the comments for the 14th Economic Assessment, the Commission revises previous forecasts agreed – under other circumstances – after the end of the 3rd Memorandum on Primary Surpluses of 2.2% of GDP by 2060 and raises the “bar”. It sets as a key assumption for maintaining debt sustainability, achieving an average surplus of 2.6% of GDP from 2023 to 2060.
According to the authors of the report, there is an assumption that the funds of the Development and Sustainability Fund that will enter the economy until 2026, will contribute significantly to the growth rate of the economy and therefore the faster de-escalation of debt.
However, in the sub-report on debt sustainability, in its baseline scenario, the Commission acknowledges that higher and higher primary surpluses will be needed. He sees that Greece will return from 2023 to a primary surplus of 1.3% of GDP which will increase continuously until 2026. Specifically, it will double to 2.7% of GDP in 2024 to reach 3.4% of GDP in 2025 and 3.7% of GDP in 2026.
The report clarifies that the assumptions about primary surpluses are based on closing the productive gap in the economy due to increased investment, but also significant savings in the cost of aging, and in particular the cost of pensions achieved in the coming years, already implemented reforms.
Collapse in growth
A second disappointing series of assumptions made by the Commission concerns the evolution of the growth rate of the economy, seeing a significant decline, after 2023.
In particular, the Commission forecasts growth of 3.5% for this year and 3.1% for 2023, which is expected to fall to 1.9% in 2025 and 1.1% in 2026, despite the fact that until then no not only will we have the largest inflow of Community funds, but also the first multiplier effects for the economy, from the integrated investments and the reforms of the Recovery Fund. In the long run, the Commission sees a steady decline in growth, which is expected to reach 0.9% by 2030 and is in line with the IMF, forecasting an average economic growth rate of 1.5% for the period from 2023 to 2060.
Slight effect on interest rates
Nevertheless, the Commission estimates that the cycle of interest rate hikes that the ECB will open in the summer will not significantly affect Greece’s borrowing costs in the medium to long term. Explaining, he states that most (about 2/3) of the Greek debt is in the hands of the official sector (ECB and EFSF / ESM) and is “locked” in fixed interest rates with a long repayment period of 30 years. Also, the annual refinancing cost remains below 20% of GDP in the medium term while the high cash resources can absorb short-term and medium-term pressures.
With these assumptions, the Commission predicts that debt as a percentage of GDP will be reduced from 185.4% which is expected to reach 2022, to 31.6% in 2060 while it will be reduced for the first time below 100% in 2040.
Source: Capital

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