Greece’s Continued Debt Relief Crisis
Greece was granted an €86 billion bailout in the second fiscal quarter to release the economic squeeze the country was under. As a requirement of the bailout, Alex Tsipras, Greek Prime Minister, was pushed to implement tax raises with cutbacks on pension and other austerity measures.
Poul Thomsen, head of the International Monetary Fund (IMF) said Greece is still under economic pressure and has been unable to deal with the public debt through reforms. Significant grace period extensions and longer maturities from its European creditors are now in order.
As predicted in August by Klaus Regling, Managing Director of the European Stability Mechanism, options for easing debt burdened Greece would include loan maturity extensions, suspending interest payments and transferring central bank profits. Although the IMF counteracted claiming the debt was unsustainable and opposed on participation in the bailout until Greece’s debt relief was foreseeable.
“We think that Greek debt has become highly unsustainable,” said Thomsen adding, “We think that Greece cannot deal with its debt without debt relief. Greece cannot deal with debt just through reforms and adjustment,” his mind unchanged since August.
In a Press Briefing on the World Economic Outlook held Tuesday, Oliveir Blanchard, IMF Economic Counselor and Director of Research Department said financial crisises are subject to two main forces: past and future, turning his attention to the Eurozone and its stagnant growth rate earlier this year.
This halted rate of the euro will create no favors for Greece continued debt relief crisis, and it has been speculated Greece may have to return to the drachma, leaving behind the euro.
Discussion on ways to allocate debt relief to Greece have shifted from a nominal risk of loss on the stock to capping gross financing needs, said Thomsen as reported by Jan Strupczewski.
Reported to Reuters on Thursday, the chairman of eurozone finance ministers said there was “broad support for capping Greece’s financing needs at 15 percent of GDP annually.”
“What the exact targets should be, we will have to discuss, but there is no doubt in our mind that if Europe wants to go the route of providing relief by lengthening the grace period and lengthening the repayment period, we are looking at a significant lengthening of the grace period and significant lengthening of the repayment period,” Thomsen said.