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Scenarios on Greek government debt

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Almost two years since the outbreak of the government financing crisis, Greece's long-term debt sustainability remains clouded by uncertainty.


, Mar 23, 2012

The approval of the second aid package, which gives Greece access to EFSF loans worth EUR 130bn up until 2014, as well as to IMF loans totaling EUR 28bn within a 4-year period, certainly signals progress in terms of restoring the country's debt sustainability. In order to be able to achieve the debt ratio of 120% by 2020, in line with the demands made by the IMF and the EU, Greece will, of course, have to ensure – even with a new government at the helm – that it can fulfill the requirements of the Troika, which consists of representatives from the EU, the IMF and the ECB, and finally get down to business when it comes to reforming its economic structure to make the country competitive again.

But what sort of savings have to be made before we can talk of a long-term return to debt sustainability? Under what sort of conditions is a substantial reduction in the government debt ratio to a sustainable level realistic? What primary balance is required to stabilize government debt?