Greece’s parliament is voting today on a final agreement of a third debt bailout that is desperately needed before Greece can receive billions in debt relief after Greek Prime Minister Alexis Tsipras threw his support behind the bailout package earlier this week despite its heavy dose of austerity measures.
The IMF, one of Greece’s three primary creditors, came out yesterday with a statement urging debt relief for Greece from their other European creditors, a move that has sparked controversy in Germany and Finland.
The IMF wrote that Greece’s public debt has become “highly unsustainable” due to the easing of austerity policies over the last year and the recent deterioration in the domestic macroeconomic and financial environment because of the closure of the banking system which added significantly to the adverse dynamics.
The financial need for Greece over the next 3 years is now estimated at €85 billion while its debt is expected to peak at close to 200 percent of GDP over the next 2 years, provided that there is an early agreement on a new bailout program.
The IMF claims that Greece’s debt can now only be made sustainable through debt relief measures that go “far beyond” what Europe has been willing to consider so far.
The European Commission on Wednesday offered a different view of Greece’s bailout agreement that contrasts with the IMF’s latest published assessment urging further debt relief.
The European Commission claims that Greece’s debt to GDP would be 165 percent in 2020 and 15o percent in 2022 if Greece takes action to cut it through the proposed bailout agreement that is filled with austerity measures.
The Commission still acknowledged that Greece’s debt to GDP could be as high as 187 percent and 176 percent but called for “reprofiling” instead of a debt “write off” that the IMF supports.
Although the White House supports the bailout agreement deal and described it as a “positive step that could help to underpin a return to growth and debt stability in Greece”, they also noted that “further work will be required”.