The continued commitment of euro area member states to support Greece and to undertake further debt relief as necessary is an essential part of the argument in favor of meeting the criteria:
Criterion 1: The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current or capital account, resulting in a need for Fund financing that cannot be met within the normal limits. Financial conditions are projected to remain unfavorable in the foreseeable future as deleveraging proceeds; and sovereign spreads are expected to remain elevated for a long period until Greece establishes a track record and decisively reduces debt. Against this background, balance of payments support beyond normal access limits continues to be required to meet Greece’s large external financing needs.
Criterion 2: A rigorous and systematic analysis indicates that there is a high probability that the member’s public debt is sustainable in the medium term. However, in instances where there are significant uncertainties that make it difficult to state categorically that there is a high probability that the debt is sustainable over this period, exceptional access would be justified if there is a high risk of international systemic spillover. The baseline debt trajectory built into the program is sustainable in the medium term but still subject to significant downside risks. Strict program implementation and, crucially, additional official debt relief will eventually deliver significant debt reduction and a significant reduction in debt service costs placing debt on a firmly declining trajectory. However, near term uncertainties—captured in a debt peak of near 180 percent of GDP—remain high enough to make it difficult to categorically affirm that debt is sustainable with high probability. At the current juncture, however, it is not possible to establish that contagion risk from Greece would be limited and manageable in the event the program review with Greece did not proceed (likely precipitating a euro exit). Notwithstanding falling exposure of the private sector to Greece and the stronger European firewall, models suggest that Greek exit could result in large and persistent output losses in Europe (Box 2). The rally in European peripheral markets after the agreement on Greece was reached and the debt buyback was concluded does indeed suggest that markets see a strong link to Greece. Exceptional access is thus justified given the still-high risk of international systemic spillovers.
Criterion 3: The member has prospects for gaining or regaining access to private capital markets within the timeframe when Fund resources are outstanding. Greece does not have market access, but conditional on successful program implementation and adequate support from its European partners, there are adequate prospects for regaining market access. Projecting the scale and timing of Greece’s return to private capital markets is difficult given the unprecedented levels of official debt compared to the standards of market access countries and the inherent complications of estimating the economy’s response to reforms. Consequently, market access assumptions in the post-program period are conservative and based on initially small issuances at short maturities and high spreads. This approach to restoring market access is expected to require protracted and significant official support to avoid the adverse debt dynamics and risk of market access loss that would result from exclusive reliance on market financing. Euro area member states have in fact agreed to extend the maturities of their GLF and EFSF loans, which vastly reduces Greece’s debt service costs and rollover requirements, considerably enhancing the prospect for Greece to gradually return to markets. They have also reiterated their commitment to provide financing during the program period and beyond until Greece restores market access, provided that Greece implements the program in full. Thus, this financing strategy ensures that Greece will have financing in a scale and timing adequate to secure repayment of Fund resources.
Criterion 4: The policy program of the member provides reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment. Political instability, persistent social pressures, and administrative capacity constraints tested the authorities at the outset of the Extended Arrangement, and implementation of the authorities’ extremely challenging policy program fell well behind schedule. However, the authorities have since demonstrated program ownership and policy resolve through the implementation of a set of prior actions that delivered strong results in key areas. The program is also being substantially revised in the present reviews to reduce administrative capacity challenges—for instance by extending timelines for implementation—and continued technical assistance from the EC and IMF will also support the authorities’ efforts to improve their institutional and technical capacity. On this basis, and although implementation risks remain, staff assesses there to be a reasonably strong prospect of success of the program.
εάν κάνουμε συζήτηση με κάποιον με βάση τα παραπάνω θέματα, θα μας κοιτάει απορημένος
Criterion 1: The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current or capital account, resulting in a need for Fund financing that cannot be met within the normal limits. Financial conditions are projected to remain unfavorable in the foreseeable future as deleveraging proceeds; and sovereign spreads are expected to remain elevated for a long period until Greece establishes a track record and decisively reduces debt. Against this background, balance of payments support beyond normal access limits continues to be required to meet Greece’s large external financing needs.
Criterion 2: A rigorous and systematic analysis indicates that there is a high probability that the member’s public debt is sustainable in the medium term. However, in instances where there are significant uncertainties that make it difficult to state categorically that there is a high probability that the debt is sustainable over this period, exceptional access would be justified if there is a high risk of international systemic spillover. The baseline debt trajectory built into the program is sustainable in the medium term but still subject to significant downside risks. Strict program implementation and, crucially, additional official debt relief will eventually deliver significant debt reduction and a significant reduction in debt service costs placing debt on a firmly declining trajectory. However, near term uncertainties—captured in a debt peak of near 180 percent of GDP—remain high enough to make it difficult to categorically affirm that debt is sustainable with high probability. At the current juncture, however, it is not possible to establish that contagion risk from Greece would be limited and manageable in the event the program review with Greece did not proceed (likely precipitating a euro exit). Notwithstanding falling exposure of the private sector to Greece and the stronger European firewall, models suggest that Greek exit could result in large and persistent output losses in Europe (Box 2). The rally in European peripheral markets after the agreement on Greece was reached and the debt buyback was concluded does indeed suggest that markets see a strong link to Greece. Exceptional access is thus justified given the still-high risk of international systemic spillovers.
Criterion 3: The member has prospects for gaining or regaining access to private capital markets within the timeframe when Fund resources are outstanding. Greece does not have market access, but conditional on successful program implementation and adequate support from its European partners, there are adequate prospects for regaining market access. Projecting the scale and timing of Greece’s return to private capital markets is difficult given the unprecedented levels of official debt compared to the standards of market access countries and the inherent complications of estimating the economy’s response to reforms. Consequently, market access assumptions in the post-program period are conservative and based on initially small issuances at short maturities and high spreads. This approach to restoring market access is expected to require protracted and significant official support to avoid the adverse debt dynamics and risk of market access loss that would result from exclusive reliance on market financing. Euro area member states have in fact agreed to extend the maturities of their GLF and EFSF loans, which vastly reduces Greece’s debt service costs and rollover requirements, considerably enhancing the prospect for Greece to gradually return to markets. They have also reiterated their commitment to provide financing during the program period and beyond until Greece restores market access, provided that Greece implements the program in full. Thus, this financing strategy ensures that Greece will have financing in a scale and timing adequate to secure repayment of Fund resources.
Criterion 4: The policy program of the member provides reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment. Political instability, persistent social pressures, and administrative capacity constraints tested the authorities at the outset of the Extended Arrangement, and implementation of the authorities’ extremely challenging policy program fell well behind schedule. However, the authorities have since demonstrated program ownership and policy resolve through the implementation of a set of prior actions that delivered strong results in key areas. The program is also being substantially revised in the present reviews to reduce administrative capacity challenges—for instance by extending timelines for implementation—and continued technical assistance from the EC and IMF will also support the authorities’ efforts to improve their institutional and technical capacity. On this basis, and although implementation risks remain, staff assesses there to be a reasonably strong prospect of success of the program.
εάν κάνουμε συζήτηση με κάποιον με βάση τα παραπάνω θέματα, θα μας κοιτάει απορημένος
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