Greek debt can only become sustainable by 2022 if all steps taken - document

BRUSSELS Wed Nov 21, 2012 4:12am GMT

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BRUSSELS (Reuters) - Greek debt can fall to below 120 percent of output by 2020 only if euro zone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount, according to a document prepared for a meeting of finance ministers on Tuesday.

The 15-page document shows that without a package of debt-reducing measures Greek debt will fall to 144 percent of GDP in 2020, 133 percent in 2022 and 111 percent of GDP in 2030, from a current level of around 170 percent.

"The package of options will not make it possible to arrive at a debt-to-GDP ratio of close to 120 percent in 2020 without taking recourse to measures that would entail capital losses or budgetary implications for euro area member states or envisage a more comprehensive DBB entailing the activation of collective action clauses," the document said.

"It may therefore be considered to postpone the benchmark for debt sustainability to 2022 by when Greece's debt-to-GDP ratio can be expected to fall below 120 percent, through the joint application of the ... measures," it said.

The document said a reduction of interest rates on bilateral loans to Greece by 70 basis points from the current 150 basis points above financing costs would cut debt by 1.4 percent by 2020. A much deeper cut to 25 basis points would result in debt falling by 5.1 percent of GDP by 2020.

Deferring interest payments by 10 years to 2022 on loans made through the euro zone's temporary rescue fund would cut Greek debt by 43.8 billion euros, or 16.9 percent of GDP.

If the European Central Bank (ECB) returned the profits it made on its Greek bond portfolio, Greece's debt would be fall by a further 4.6 percent in 2020, the document showed.

Buying back 10 billion euros worth of Greek bonds from private investors at 50 cents per euro would result in debt falling by 2.4 percent of GDP by 2020.

But the combined elements would still fail to reduce the overall debt-to-GDP ratio to 120 percent by 2020, the level the IMF has deemed as "sustainable". If that target cannot be reached, the IMF may withdraw from the Greek bailout programmes.

(Reporting by Annika Breidthardt and Jan Strupczewski)

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