The Greek parliament’s approval of an additional EUR13.5bn of austerity measures shows that the near-term risk of Greece leaving the eurozone has receded, Fitch Ratings says. But Greece needs further debt relief, the burden of which will fall on official sector creditors, if public debt sustainability is to be brought back on track.
From Fitch Ratings
We think that only a combination of deeper interest rate cuts on eurozone loans, the European Central Bank giving up profits on its Greek government bond holdings, and the migration of bank support costs to the European Stability Mechanism could secure lasting public debt sustainability.
Greece’s sovereign debt restructuring in April 2012 has left 70% of Greek government debt in the hands of official creditors, meaning there is little to be gained from further private sector involvement.
Our new “base case” therefore factors in a two-year extension and weaker economy, and points to a further deterioration in Greek public debt dynamics versus our March forecast. It sees public debt/GDP peaking at 192% in 2014-2015 (our previous forecast, in March, was for a 2013 peak of 170%), and suggests the ratio is unlikely to fall below 150% of GDP by 2020. We rate Greece ‘CCC’, reflecting the real possibility of default.
See the summary ($) Fitch: Vote Cuts Greek Exit Risk, Onus Now on Official Creditors and the full Fitch Ratings report ($) on Greece