[Updated] Get Greece (out) | FT Alphaville

[Updated] Get Greece (out)

Brutal, brutal, formal, excruciatingly-timed, leaked confirmation of what we we’ve known for ages – the Greek bailout 2.0 is Souvlaki in the sky

First from Reuters, who had the toxic doc first (got that?):

(Reuters) – Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn’t follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a confidential analysis conducted by the IMF, European Central Bank and European Commission shows.

And from the FT’s Peter Spiegel, who has been leafing through the same leaked report:

The report makes clear why the fight over the new Greek bail-out has been so intense in recent days. A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance since they received the report about the advisability of allowing the second rescue to go through.

A “tailored downside scenario” prepared for eurozone leaders in the report suggests Greek debt could fall far more slowly than hoped, to only 160 per cent of economic output by 2020 – far below the target of 120 per cent set by the International Monetary Fund. Under such a scenario, Greece would need about €245bn in bail-out aid, nearly twice the €136bn under the “baseline” projections.

“Prolonged financial support on appropriate terms by the official sector may be necessary,” the report said, a clear reference to the possibility that bail-out funds may be needed indefinitely.

Even under the most favourable circumstances, Greece could need an additional €50bn in bail-out aid by the end of the decade on top of the €136bn in new funds until 2015 being debated at a crucial eurozone finance ministers’ meeting on Monday night. That “baseline” scenario includes projections that the Greek economy will stop shrinking next year and return to 2.3 per cent growth in 2014.

The Eurogroup meeting was still underway in Brussels at pixel time.  We’d hazard a guess that negotiations were actually going okay… until this report came out.

Here’s a very useful fact box on the matter from Reuters.

And here’s a totally useless word cloud on the leaked document, also from Reuters…

Updated — Peter Spiegal has more on the Brussels Blog.

Basically, a lot of what we (and others) have been saying is in this DSA report.

The baseline scenario in the report forecasts 4.3 per cent decrease in GDP this year, followed by flat growth in 2013 and 2.3 per cent growth in 2014. This is the scenario described in the FT story published late Sunday, which only brings the debt/GDP ratio down to 129 per cent in 2020, and requires 136bn rather than the 130bn that has been discussed.

The “tailored downside” scenario, however, includes this:

On the policy side, it may take Greece much more time than assumed to identify and implement the necessary structural fiscal reforms to improve the primary balance from -1 percent in 2012 to 4½ percent of GDP, and concerning assets sales, delays may arise due to market-related constraints, encumbrances on assets, or political hurdles.

As the cover at the front highlights (emphasis ours):

Given the high prospective level and share of senior debt, the prospects for Greece to be able to return to the market in the years following the end of the new program are uncertain and require more analysis. Prolonged financial support on appropriate terms by the official sector may be necessary.

There’s much, much more. For example, Spiegel writes:

Then it goes onto note that the €200bn debt restructuring – which involves €100bn in losses for private investors and is known as “PSI” for “private sector involvement” – may also have unintended consequences by creating a new class of investors.

It also lists several suggestions which could cut the eventual 2020 debt/GDP ratio by 12 percentage points if taken together — including the national central banks’ bondholdings being included in PSI restructuring, and the ECB foregoing profits on its Greek debt holdings.

It’s getting on for 4am in Brussels at pixel time, and it sounds like the press corp are falling like flies, so who knows when this will end.

By Paul Murphy & Kate Mackenzie

Related links:
Greek economic nightmare laid bare – FT
Exclusive: Greek debt may remain at 160 per cent in ’20: IMF/ECB – Reuters
More on the leaked Greek debt report – FT Brussels Blog