ATHENS – While Prime Minister and Radical Left SYRIZA Alexis Tsipras said the end of three international bailouts of 326 billion euros ($372.37 billion) on Aug. 20 will herald a recovery for Greece's debt-crushed economy, it will struggle for decades to repay what it owes and be closely monitored by international lenders.
Despite relief in the form of being more time to repay the rescue packages, the government will find it hard to hit a 2.2 percent of Gross Domestic Product (GDP) target until 2060 for a primary surplus, many analysts said.
The Washington, D.C.-based International Monetary Fund (IMF,) which took part in two first bailouts of 240 billion euros ($274.14 billion) with the European Union and European Central Bank (ECB) but was replaced in a third of 86 billion euros ($109.66 billion) by the European Stability Mechanism, warned Greece's debt costs will “begin an uninterrupted rise” after 2038, to about 20 percent of GDP, which would mean more debt relief would be needed.
The country's economy has lost nearly 25 percent of its GDP in more than eight years of an economic and austerity crisis and growth prospects seem anemic with foreign investors that Tsipras wants – and many in SYRIZA don't – staying away after an avalanche of tax hikes pushed the corporate rate to 29 percent and the country's notorious bureaucracy too hard to face.
The last loan installment, this one of 15 billion euros ($17.3 billion) has been delivered and the government will use 9.5 billion euros ($10.85 billion) of that as a cash buffer until seeing how markets will react to the end of the bailouts.
With two test bonds of 3 billion euros ($3.47 billion) having sold in the last year – but at interest rates more than three times higher than the bailouts, before a debt relief deal was recently struck showed the cost of relying on private investors could be high.
Tsipras’ claim of a so-called “Clean Exit” from the bailouts was shot down by the creditors who said the country’s economy would need continued monitoring for years to make sure fiscal targets are met and there’s no reneging on reforms as he did on anti-austerity vows.
“Greece can now begin a new page of progress, justice and growth,” Tsipras’ office said in a statement as he doesn’t meet reporters nor hold news conferences to avoid taking questions. “We face a lot of work ahead, but also a new prospect, at last, for the majority” of the Greek people, it said, although the harsh measures he agreed to hit the majority of the Greek people.
The ECB will restrict Greek banks’ access to its cheapest funding operations from Aug 21 a move that could increase costs for lenders but may still help shore up confidence in Europe’s weakest economy, Reuters said.
The ECB will revoke a so-called ‘waiver’ which allowed Greek banks to post junk-rated government bonds as collateral in regular funding operations, which could force Greek banks to seek more Emergency Liquidity Assistance, a more expensive source of central bank funding, and would keep Greek papers ineligible for the ECB’s 2.6 trillion ($2.97 trillion) euro bond purchase program.