The debt level hits a new high, and the financial situation deteriorates
again
-
Will Greece fall into a "debt crisis" again
Qu Junpeng, a reporter based in Athens
Recently, data released by the Greek Ministry of Finance show that the Greek government’s public debt stock reached 374 billion euros at the end of 2020. Based on the Greek GDP of 168.5 billion euros in 2020, Greece’s debt level accounted for a record 222% of GDP. The level exceeded 200% for the first time, far exceeding the 129.7% when the Greek debt crisis broke out at the end of 2009, and more than twice the average debt level of the European Union and the Eurozone.
In fact, before the outbreak of the debt crisis, Greece's debt level had leapt to the first place in the EU; after the outbreak of the debt crisis, Greece had "topped" the EU's largest debtor country for ten consecutive years.
The economic stimulus and financial assistance measures taken by the Greek government in response to the new crown pneumonia epidemic have led to a substantial increase in government expenditures, and the government's fiscal position has returned from a basic surplus (excluding interest payments) to a basic deficit (excluding interest payments).
The International Monetary Fund (IMF) predicts that Greece's basic fiscal deficit rate will reach 7% and 6% in 2020 and 2021, respectively.
The debt level has hit a new high and the financial situation has deteriorated again. Some analysts have pointed out that there are signs that Greece seems to be at risk of a second "debt crisis."
However, although the short-term outlook for Greece’s debt level is not optimistic, it does not mean that Greece will fall into a “debt crisis” again. In the long run, Greece’s future debt level will show a downward trend, and the debt situation will have controllable risks and more sustainable. Strong.
The EU continues to support
From 2010 to 2018, after difficult negotiations, Greece received a total of 241.6 billion euros from the three rounds of international creditor rescue plans, provided that Greece must meet a series of reform requirements and austerity measures of international creditors, such as private state-owned assets. Reduce public servants, cut public welfare, raise taxes, etc.
Through the strong support of the European Union and Greece's “salary and courage”, Greece finally succeeded in getting rid of the “crutch” of the rescue plan in August 2018, relying on its own strength to start walking independently.
In the settlement of the Greek debt problem, the European Union has long pursued the strategy of "giving both grace and prestige", putting "prestige" first, "prestige" first and then "gracious", and "bitter" first and then "sweet".
Before withdrawing from the rescue plan, the prerequisite for the Euro Group to require Greece to "graduate" is to strictly abide by the important reform plan and fiscal target requirements stipulated under the framework of the European Stability Mechanism.
In order to prevent Greece from repeating its mistakes and out of control of debt risks, the European Union stipulates that Greece needs to carry out structural reforms in the six key areas of social welfare, financial stability, labor and product markets, privatization of state assets, and modernization of public administration by the middle of 2022. The EU will Close and continuous supervision of Greece’s economic and fiscal conditions.
Up to now, the European Commission has conducted 9 reports on strengthening supervision of Greece to assess Greece’s economic conditions and reform implementation in a timely manner to ensure that Greece’s debt level is controllable.
In addition, the European Union treats Greece equally and even gives special care in the formulation and implementation of the economic stimulus plan and monetary policy.
In July last year, the European Union introduced the largest economic stimulus plan in history. Greece also got a large bowl of "soup" from this plan, and received a total financing package of 72 billion euros, including 19.5 billion euros of free grants and 12.5 billion euros. Low-interest loans in euros and 40 billion euros provided through other medium-term development frameworks and the Common Agricultural Policy from 2021 to 2027.
Greek Prime Minister Mizotakis called this a "reasonable and fair historic agreement, which has unprecedented significance for the reconstruction of Greece."
At the same time, the European Central Bank’s 1.85 trillion emergency bond purchase plan (PEPP), which began in March last year, includes Greek bonds, which will provide Greece with sufficient liquidity for refinancing and reduce financing costs and risk premiums. , Which is conducive to the sustainability of debt.
In fact, before Greece withdrew from the rescue plan, the European Union had reduced or forgave Greece’s debt and extended the maturity period. It also stated that if Greece’s debt has sustainability problems at the end of 2032, it will continue to take other assistance measures, but the premise is that Greece must maintain a balance. Fiscal policy and continue to strengthen economic reforms.
Rolf Strauch, chief economist of the European Stability Mechanism, pointed out that European support, low interest rates, and Greece’s fiscal status before the outbreak have enabled Greece’s debt to be brought under control.
Colin Ellis, head of Moody's European operations, also said that European support for Greek debt is a "catalyst" to ensure the sustainability of Greece's debt. If you continue to follow this path, Greece's debt will be sustainable.
Controllable debt
Although Greece’s debt stock has set a historical record at the end of 2020, the Greek public debt structure is relatively simple and stable, with a relatively loose debt repayment period and lower debt repayment costs, which is conducive to reducing the risk of debt default.
Of the 374 billion euros of public debt in stock at the end of 2020, long-term debt over 5 years accounted for more than 75%, and the average remaining life of the debt was 19.43 years, of which 248.3 billion euros were low-interest and long-term loans under the European Stability Mechanism, accounting for the entire debt 66.4% of the total, and the loan interest rate is less than 1%. Only the IMF’s loan interest rate of less than 2 billion euros is slightly higher than 3%. In order to reduce borrowing costs, Greece has repaid the IMF about 6 billion euros in advance. loan.
Fitch pointed out that Greece's interest-to-income ratio in the next two years is the lowest among all countries in the "BB" rating category.
Since non-resident external official lenders, that is, official institutions, hold the vast majority of Greece’s outstanding debts, Greek financing can be less affected by short-term fluctuations, and a stable debt structure and lower debt servicing costs can help reduce debt Structural fragility and rollover risks associated with high debt levels.
In addition, the European Central Bank's quantitative easing and low interest rate policies, as well as the emergency anti-epidemic bond purchase plan, and other external positive factors have also provided favorable financing conditions for Greece, keeping Greece's borrowing and debt servicing costs at a low level.
In March of this year, Greece reissued 30-year government bonds for the first time since 2008, with a yield of about 1.95%. The Greek Finance Minister said that this marked Greece's "full return" in the international bond market.
In less than two years before, Greece has raised a total of about 20 billion euros through the issuance of short- and medium-term national debt at historically low yields. This has ensured sufficient cash flow through low financing costs and provided stability for the repayment of short-term debt. The guarantee helps to improve the sustainability of debt and further promotes the improvement of Greece’s credit rating and international investor confidence.
As of the end of 2020, the Greek government’s cash reserves were approximately 31 billion euros, enough to guarantee debt repayment and interest payments in the next two years.
Optimistic economic recovery
Before the outbreak of the global new crown pneumonia epidemic, the Greek economy showed a clear momentum of recovery, and the financial situation was getting better day by day. From 2017 to 2019, it maintained positive economic growth for three consecutive years, and the basic surplus as a percentage of GDP significantly exceeded the 3.5 set by international creditors % Of fiscal goals.
Although the new crown pneumonia epidemic has "poured cold water" on the short-term economic and fiscal situation of Greece, after a variety of reasonable economic stimulus measures and financial support plans have passed the epidemic crisis smoothly, the prospects for Greece's economic recovery in the medium and long term are generally optimistic. , The confidence of the international market is restored, and the financial situation will continue to improve.
The Central Bank of Greece predicts that the economy will grow by 4.2% and 4.8% in 2021 and 2022, respectively.
With the large-scale popularization of vaccination, the international community generally predicts that the Greek economy will recover from the crisis as soon as possible. The IMF predicts that the Greek economy will recover close to 4% in 2021, and the economy will recover strongly in the second half of the year. The economic growth rate will reach 7% in the fourth quarter. The European Commission pointed out that although the new crown pneumonia epidemic has had a considerable impact on the Greek government debt, because the emergency fiscal measures related to the epidemic are temporary, the economy will begin to recover in 2021, and it is expected that Greece’s GDP will be in 2021 and 2022. Increases by 3.5% and 5% respectively, the ratio of government debt to GDP will show a downward trend starting in 2021.
Iron strikes still need to be hard on its own. The key element of Greece's debt sustainability is that the government must maintain rapid economic recovery and growth and implement a prudent and balanced fiscal policy.
The Greek government has also actively fulfilled its reform commitments to international creditors. Through drastic structural reforms, various obstacles have been removed for economic development, while the reform of the administrative and judicial system has been stepped up to improve the loopholes in the taxation system.
Not long ago, Greece announced a national recovery plan called "Greece 2.0". The plan includes 170 specific projects, investments and reforms, involving a total amount of 57 billion euros. The goal is to increase Greece's GDP by 7 percentage points by 2026. , Create about 200,000 jobs and increase private investment by 20% to transform the economic development model of Greece and promote the development of the Greek economy toward green, externalization, diversification and sustainable development.
Through an ambitious economic recovery plan, Greece, on the one hand, promotes rapid economic recovery and maintains a long-term high growth rate, ensuring that the economy continues to expand in order to reduce the burden of national debt; on the other hand, by increasing public fiscal revenue, ensuring a basic fiscal surplus and maintaining Prudent fiscal policy to ensure timely repayment of due debts and annual interest.
All parties still need to work hard
Although facing many opportunities, Greece is less likely to fall into a debt crisis again, but it still faces considerable challenges to maintain a sustainable decline in debt levels, a basic surplus in its fiscal position, and rapid economic growth.
One is the slow decline in debt levels.
Although Greece is mostly long-term debt, due to the large scale of foreign debt, its own economy is small, and the debt level is falling slowly.
The European Commission predicts that Greece’s debt level will remain at a high level of more than 120% of GDP until at least 2040. The short- and medium-term debt situation is still worthy of attention. Second, the government’s total financing needs (GFN) will remain high.
The Greek government's short- and medium-term financing needs are still strong, and fluctuations in international financing conditions and global liquidity have a greater impact on it. Once fiscal tensions and liquidity difficulties occur, the increase in debt rollover will exceed the reduction in budget deficits, and the debt will be sustainable. Sex has a certain negative impact.
The European Commission’s "Debt Sustainability Report" predicts that the total financing needs of the Greek government will hover at about 15% of GDP in the next 20 years, and will drop to about 13% of GDP by 2060. The global average is expected to remain at GDP in 2030. The third is that there are many difficulties in economic restructuring.
The Greek economy has long relied on tourism, shipping, and agriculture as its economic pillars. It lacks core competitiveness and technological competitiveness. If the Greek economy wants to develop in a healthy and stable manner in the long term, it must carry out structural reforms, get rid of the original economic ills, and look for new ones. Growth engine.
Although the Greek government has launched a new national recovery plan and has implemented a series of drastic reforms with a view to transforming the economic development model, problems such as greater resistance to reforms of vested interests in the industry, inefficient public administration operations, and a large loss of high-end talent during the debt crisis are all problems. This has brought certain difficulties to Greece's future economic development.
Today, facing various global challenges, both Greece and the European Union need to take history as a mirror, sum up experience and lessons, improve system shortcomings, jointly maintain European integration and the healthy development of member states’ economies, and prevent historical tragedies from happening again.
Qu Junpeng, our reporter based in Athens
Qu Junpeng, our reporter based in Athens