BRUSSELS An analysis by the IMF, European Central Bank and European Commission of Greece's debt mountain shows Athens will struggle to cut its debt burden to a target of 120 percent of GDP by 2020, documents obtained exclusively by Reuters show.
Following are the main points in the 9-page confidential report, which was completed on February 15 and submitted to euro zone finance ministers. It is the basis of discussions among the Eurogroup at a meeting in Brussels on Monday to decide on whether to sign off on a second financing program for Greece.
* The baseline scenario sees Greece being able to cut its debt-to-GDP ratio to 129 percent by 2020, but only if the country manages to follow through on all its structural reforms, fiscal obligations and its privatization program.
* A critical concern is that a deeper recession caused by delays with structural reforms and privatization implementation will set the program back. "This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020," the report says. "Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it."
* The report says that Greece's banks may need as much as 50 billion euros of extra capital, 10 billion euros more than previously expected, with various analyses conducted by outside parties pointing to a worse-than-forecast situation.
* If Greece is to get its debt level down to 120 percent of GDP by 2020, then it will require additional private sector and official sector support, the reports says. It lists four ways in which the debt burden could be further lightened:
1) A restructuring of the accrued interest owed on debts that are due to be exchanged as part of the bond swap. This would shave a further 1.5 percentage points from the debt/GDP figure, and reduce official financing by 5 billion euros over the course of the program.
2) A reduction in the interest rate payable on loans extended to Greece under its first program in May 2010. If the interest rate spread is reduced to 210 basis points over the term of the loan it would reduce the debt burden by a further 1.5 percentage points by 2020.
3) National euro zone central banks that own Greek debt take part in the debt restructuring in the same way as private creditors will. That would reduce the debt level by about 3.5 percentage points, after accounting for sums needed to recapitalize the Bank of Greece.
4) The European Central Bank transferring the profit on its holdings of Greek bonds to national euro zone central banks and those funds then being discounted from Greece's debt obligations. That would reduce the debt pile by a further 5.5 percentage points by 2020. Official financing would also drop by around 5 billion euros, the report says.
* The debt sustainability analysis also provides the first confirmation of the offer being made to the private sector to take part in Greece's debt restructuring.
* The report says private sector bondholders will see a 50 percent reduction in the nominal value of their holdings, with 35 cents in every euro converted into 30-year bonds amortizable after 10 years and 15 cents paid upfront in short-term notes.
* A coupon of 3 percent would be paid on the bonds from 2012-2020, rising to 3.75 percent from 2021 onwards.
* A GDP-linked additional payment would also be made, capped at 1 percent of the outstanding amount of new bonds
* The report assumes a creditor participation rate of 95 percent.
* Overall, the report says "the Greek authorities may not be able to deliver structural reforms and policy adjustments at the pace envisioned in the baseline." It adds later: "The debt trajectory is extremely sensitive to program delays, suggesting that the program could be accident prone, and calling into question sustainability."
(Reporting by Jan Strupczewski; Writing by Luke Baker, editing by Mike Peacock)