Greek debt nightmare laid bare

February 21, 2012 / by / 0 Comment

Financial Times)

– A “strictly confidential” report on Greece’s debt projections prepared for eurozone finance ministers reveals Athens’ rescue programme is way off track and suggests the Greek government may need another bail-out once a second rescue — set to be agreed on Monday night — runs out.

The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-out.

It warned that two of the new bail-out’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200bn debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.

“Prolonged financial support on appropriate terms by the official sector may be necessary,” the report said.

The report made clear why the fight over the new Greek bail-out has been so intense. A German-led group of creditor countries — including the Netherlands and Finland — has expressed extreme reluctance to go through with the deal since they received the report



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