European Commission’s two scenarios on Greek debt

The viability of Greece’s debt is being restored according to the European Commission’s basic scenario in its Debt Sustainability Analysis (DSA).

It projects that Greece’s funding needs will be much lower than 15 percent of GDP on an annual basis until 2030, while the debt to GDP ratio will be limited 116.9 percent in 2040, and 96.8 percent in 2060.

The same analysis includes an adverse debt scenario, according to which from 2030 and thereafter, the debt to GDP ratio will rise to 234.8 percent of GDP in 2060, with annual funding needs that exceed the eurozone’s limit of 18.1 percent in 2030. It would shoot up to 53.5 percent in 2060.

The parameters of the basic DSA scenario are as follows:

Long-term growth will be on average about three percent between 2020 and 2060.

Secondly, Greece will meet the target of a 3.5 percent primary surplus until 2022. After that, primary surpluses will fall by 0.5 percent annually, so as to reach an average of 2.2 percent b 2060.

The scenario provides for a gradual use of the cash buffer, so as to partially cover funding needs for debt servicing. Hence, the projection is that the cash buffer will decline from 24.1bn euros in August, 2018, to 12bn euros by 2022.

The total revenues from privatisation are estimated at 14bn euros between 2018 and 2060, of which 11.5bn euros will derive from non-banking assets.

Given that data, and taking into account the debt relief measures decided by the Eurogroup on 21 June, the Commission projects that the debt will amount to 177.5 percent of GDP in 2019, and will recede to 168.9 percent of GDP in 2020, 131.4 percent of GDP in 2030, and 96.8 percent in 2060.

As regards annual funding needs, next year they will be 10.8 percent, 9.4 percent in 2020, 11.1 percent in 2030, and 19.8 percent in 2060.
In the adverse scenario, the rise in GDP drops by 0.2 percent annually, as compared to the basic scenario, until 2060. In that case, the primary surplus will match the basic scenario until 2022, and thereafter will fall by an average of 1.5 percent annually until 2060.

Under those conditions, the debt falls to 179.7 percent of GDP in 2019, 172.6 percent in 2020, and 149.8 percent in 2030.

After that, the debt enters a non-sustainable course, with a rise to 186.6 percent in 2050, and 234.8 percent in 2060.