Greece needs debt write-off and €50 billion, IMF says

Greece needs 30 percent of its debt mountain to be written off and a bailout package worth €51.9 billion over the next three years in order to stay afloat, the International Monetary Fund said in a report that is set to inflame the referendum debate in the deb-ridden country.

The findings are contained in an IMF staff paper published on Thursday (2 July) analysing Greece’s debt sustainability.

The Fund agreed to Greece’s second €140 billion bailout in November 2012 on the back of a haircut on private sector owners of Greek debt which would allow the country to reduce its debt burden below 120 percent - the largest debt burden deemed to be sustainable - by 2020.

However, despite a write-off of Greek debt worth around €100 billion, the country’s debt burden still stands at over 175 percent.

“A haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets,” the IMF paper contends.

“To ensure that debt is sustainable, Greek policies will need to come back on track but also, as a minimum, the maturities of existing European loans will need to be extended significantly while new European financing to meet financing needs over the coming years will need to be provided,” the IMF paper contends.

The Washington-based institution also argues that Greece should be given a 20-year grace period before it begins to make debt repayments, with the final repayments not concluding until 2055.

“Even with concessional financing through 2018, debt would remain very high for decades and highly vulnerable to shocks,” the IMF says.

“Assuming official concessional financing through end-2018, the debt to GDP ratio is projected at about 150 percent in 2020, and close to 140 percent in 2020.”

No third bailout without debt restructuring

It also said it would not take part in a third bailout package for Greece if there is no debt restructuring.

The IMF’s intervention is a major symbolic blow to eurozone finance ministers, led by Germany’s Wolfgang Schaueble, who have

rejected the debt question.

Talks on Greece's second bailout collapsed last week when Greek PM Alexis Tsipras unexpectedly announced he would hold a referendum on the creditors' latest terms.

The referendum, to be held on Sunday (5 July), is being preceded by major political and financial uncertainty in Greece, where banks are closed and capital controls have been imposed.

The paper warns that an average growth rate of 1 percent a year, combined with a budget surplus of 2.5 percent, would still result in Greece’s debt burden remaining over 100 percent for at least the next three decades - an analysis that is likely to be seized on by the Athens government, which is campaigning for a No vote in the hope of squeezing a better deal out of creditors.

Tsipras, and his finance minister, Yanis Varoufakis, have stated that they will not sign up to any new austerity programme without a restructuring of Greece’s debts.

They also tabled a request for a two-year €29bn laon which was rejected out of hand by the Eurogroup of eurozone finance ministers, whose chairman, Jeroen Dijsselbloem, stated on Wednesday that no further negotiations would take place until after Sunday’s plebiscite.

The draft report was prepared last week, before Greece failed to honour a €1.6 billion repayment to the IMF on Tuesday (30 June) and imposed capital controls at the start of the week.