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Sovereign International Newsletter ISSUE 01 October 2012

FINANCIAL NEWS Greece debt in worse state now than six months ago

2020 for the situation to be manageable and concluded the goal was achievable under certain optimistic assumptions.

BRUSSELS: Every step Greece takes to shore up its finances seems to make it harder for Athens to make the numbers add up in the But as so often with the Greek economy in the past three years, long-term, especially when it comes to its spiralling debt. most of the assumptions are already way off-target and the likeliMonday's 2013 budget plan contained some positive news - for example, the expectation that Greece will have a primary budget surplus, before debt financing costs, for the first time since 2002 - as well as some more alarming forecasts.

hood of Athens meeting the 2020 goal is now even slimmer than it was then. That makes it all the more likely that Athens will have to go through another debt restructuring, involving further losses for

Chief among those was an acknowledgement that the economy will bondholders, if it is to return to solvency. And this time it is the shrink again next year, by 3.8 per cent, the sixth annual contraction official sector -- mostly European governments and their taxpayers in succession, and that the debt-to-GDP ratio will rise to 179.3 per - who will have to take a hit rather than the private sector. cent in 2013, a dauntingly high figure. That would be a major blow to German Chancellor Angela Merkel, The bottom line is that Greece is in a worse state now than even the whose country is the biggest contributor to euro zone rescue funds, most pessimistic forecast just six months ago. and diplomats say she would be eager to avoid such an event before The relationship between growth and debt is the focus of the European Commission, the European Central Bank and the International Monetary Fund -- the troika of inspectors currently in Athens poring over the government's projections. In the coming 4-6 weeks, the troika will publish its latest report assessing whether Greece's debt is sustainable in the longer-term, something many private sector economists have already concluded is not the case. In its last analysis published in March, the troika said Greece needed to get its debts down to 120 per cent ofGDP by

a September 2013 German general election. "Debt reduction will still require a herculean domestic fiscal adjustment," JP Morgan said in an analysis of Greece's deteriorating debt predicament back in July. "The upshot of this arrangement is that the inevitable decisions on burden-sharing that lie ahead will relate to official creditors and Greek citizens," it said, noting 70 per cent of Greek debt would be in official sector hands by 2014.






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Sovereign International Newsletter ISSUE 01 October 2012


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