* Debt/GDP could rebound to 160 pct in 2020 if reform
* Experts say austerity imperative clashes with boosting
* Political resistance, bureaucratic inertia threaten
* Risks seen "mostly on downside"
By Jan Strupczewski
BRUSSELS, Feb 21 Greece's second bailout
programme could easily go off the rails and send the nation's
debt rocketing back to today's unmanageable levels, a
confidential study by its international lenders shows.
The 9-page debt sustainability analysis, on which euro zone
finance ministers based their decision on Tuesday to approve a
130-billion-euro rescue programme, is anything but a vote of
confidence in Athens' ability to put its public finances back on
a sound footing.
Indeed the report, dated Feb. 15 and first obtained by
Reuters on Monday, describes in the disembodied prose of
economic bureaucrats how uncertain Greece's recovery will remain
for many years, and how Athens will likely need international
aid for an indefinite period.
Experts from the European Commission, the European Central
Bank and the International Monetary Fund highlighted the risks
and questioned the assumption that Greece will be able to return
to capital markets in the coming years.
"There is a fundamental tension between the programme
objectives of reducing debt and improving competitiveness, in
that the internal devaluation needed to restore Greece's
competitiveness will inevitably lead to a higher debt to GDP
ratio in the near term," the analysis said.
"Given the risks, the Greek programme may thus remain
accident-prone, with questions about sustainability hanging over
The authors voiced particular concern that continued delays
in unpopular structural economic reforms and privatisations
could further deepen a recession now in its fifth year.
"This would result in a much higher debt trajectory, leaving
debt as high as 160 percent of GDP in 2020." That is roughly the
current level, before an agreed writedown of about 53.5 percent
of the face value of bonds held by private investors, which with
other measures is due to cut the debt to 120.5 percent in 2020.
Euro zone finance ministers cut the interest rate on
official loans to Greece, forced private bondholders to accept
deeper losses and agreed to harness European Central Bank
profits on Greek bonds to make the numbers add up.
But the analysis cautioned that Greece may veer off the
central scenario on which those figures are based if it is
unable to implement all the necessary changes quickly enough.
"The Greek authorities may not be able to deliver structural
reforms and policy adjustments at the pace envisioned in the
baseline," it said.
"The debt trajectory is extremely sensitive to programme
delays, suggesting that the programme could be accident prone,
and calling into question sustainability," it said.
RISKS "MOSTLY ON DOWNSIDE"
In a blandly understated summary of the political risks to
the programme, the experts note that "economic agents" (workers)
may resist wage cuts and flexibility, "strong vested interests"
may continue to resist opening up closed professions and
liberalising product markets, and bureaucracy may continue to
shackle business reforms.
Low market prices, legal obstacles and political resistance
may continue to delay the sale of state assets which has barely
begun almost two years after it was first promised.
Much of the report focused on ways to find a few billion
euros in further debt reductions to get the headline number down
to 120 percent of GDP - the level set by European leaders last
October and regarded by the IMF as sustainable.
However, the most alarming parts concerned the danger of a
bailed-out Greece continuing to fall behind on its targets.
The report warns that the balance of risks is to the
downside -- if Greek primary balance does not rise above 2.5
percent of GDP, from -1 percent in 2012, debt would be on an
ever increasing trajectory.
If revenues from privatisation are only 10 billion euros
rather than 46 billion by 2020, Greek debt would be 148 percent
of GDP in eight years.
If Greek economic growth is permanently higher than 1
percent a year, debt would fall to 116 percent of GDP by 2020,
but if it is permanently lower, debt would rise to 143 percent.
Because Greece will be financing itself mainly through the
EFSF, a rise in the borrowing costs for the fund of 100 basis
points would mean Greek debt at 135 percent in 2020.