BRUSSELS – Greece was pulled back from impending default Saturday, when eurozone finance ministers signed off on a vital loan installment. But the country’s international creditors are showing more concern over whether it can service its debt in the long run.
Athens will get a $17.39 billion installment of its existing $160 billion rescue package by July 15, in time to meet several bond repayment deadlines this month and next, the finance ministers of the 17 countries that share the euro said in a statement Saturday evening. The eurozone and the International Monetary Fund will also continue to prop up Greece’s struggling economy in the coming years, with a second package of aid loans to be finalized by September.
While the renewed commitments save Greece from immediate collapse, even its international creditors – long the biggest optimists on the country’s prospects – are warning that getting down a debt of 160 percent of economic output will be a difficult balancing act.
“The Greek government debt will remain for many years at a high level and, therefore, subject to possible adverse developments that cannot be predicted,” the European Commission, the EU’s executive and one of the three institutions in charge of Greece’s bailout, said in a report published Saturday.
Especially lower than expected economic growth “would put the debt trajectory on a clearly unsustainable upward path,” the commission said.
The report, the basis for the ministers’ decision to release the July aid installment and prepare a new bailout, is the most pessimistic assessment from the commission yet. Private analysts and economists have long questioned the sustainability of Greece’s debt. However, the European Union, the European Central Bank and the IMF have so far, at least publicly, upheld their belief that Greece’s situation is manageable.
The commission still maintains that it is “not unrealistic to assume” that Greece can cut its deficits to the targets set out in its bail-out program, and thereby slowly chip away at its debt. But the report puts a sizable question mark over the country’s ability – and willingness – to implement the reforms its creditors say are necessary to get the economy growing again.
“Solvency depends on the political and social conditions which allow or not the implementation of the required policies,” the report cautions.