Measures announced yesterday by the ‘Troika’ to unblock a package of measures worth €44bn for Greece, are steps in the right direction, but will not be not sufficient to reduce the public debt of the country substantially, and to restore debt solvency by 2020, according to Fabio Fois, European economist at Barclays.
In line with expectations, European governments and the IMF will release bailout funds to shave projected Greek debt to 124% of GDP by 2020, with a 20% cut in Greek debt by the deadline.
“But we found surprising that no fresh funds were committed, not even for the debt relief,” the economist said.
He referred to a comment made by IMF’s Christine Lagarde (pictured): “Once progress has been made on specifying and delivering on the commitments made today, in particular implementation of the debt buybacks, I would be in a position to recommend to the IMF executive board the completion of the first review of Greece’s program.”
As such, Barclays continues to think that without public sector involvement and fresh funds to implement the buyback, public debt will remain well above the solvency threshold of 120% of GDP by 2020.
“We think that the positive response of the market might prove short-lived,” Fois said.