UPDATE 1-ESM's Regling says Greece's debt is sustainable

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ATHENS, May 13 (Reuters) - The head of the euro zone’s bailout fund said Greece should be able to manage its soaring public debt as economies recover from the coronavirus pandemic but would need to focus on strengthening productivity and labour markets.

Greece’s public debt has jumped to more than 200% of gross domestic product, the highest level in the European Union, as the government has pumped in money during the crisis.

But despite its junk credit ratings, Greece is included in the European Central Bank’s Pandemic Emergency Purchase Programme and its 10-year borrowing costs have fallen below 1%.

“We consider Greek debt to be sustainable,” Klaus Regling, the head of the European Stability Mechanism, told the Delphi Economic Forum in Athens on Thursday, adding that Greece had been right to massively increase borrowing to keep its economy afloat during the pandemic.

Regling said the government must aim to stimulate growth by boosting productivity, strengthening labour markets, making good use of EU support funds and returning to solid public finances once the crisis was over.

“These are big challenges, I think they are manageable,” he said.

Greece returned to international bond markets in 2017 after being locked out during a decade-long debt crisis from which it finally emerged in August 2018.

Dimitris Tsakonas, head of Greece’s public debt management agency, said lower borrowing costs caused by a combination of low interest rates and prudent debt management meant that annual interest payments would not exceed 5.5 billion euros “for a long period of time”.

He pointed to a cash buffer of 33 billion euros, enough to cover financing needs for a 2-3 year period, said annual gross financing needs would not exceed 10 percentage points of gross domestic product in the decades to 2060.

“Greece is going to meet its debt obligations under all circumstances for a long, long period of time,” he said.

Athens plans to spend more than 14 billion euros on support measures this year after spending about 24 billion euros in 2020 in subsidies and loans to companies to maintain jobs. (Reporting by James Mackenzie and Lefteris Papadimas Editing by Gareth Jones)