Greece requires substantial debt relief, IMF says

Greece required substantial debt relief to secure the long-run sustainability of its government´s finances, the International Monetary Fund said.

The country needed a mix of debt maturity extensions, payment deferrals and fixed interest rates, the Fund´s economists said in the latest update to their debt-sustainability analysis for the Mediterranean country.

The maturity on the loans provided to Athens under the European Financial Stability Facility, European Stability Mechanism and Greek Liquidity Fund should be extended by up to 14, 10 and 30 years, respectively, the Washington-based lender said.

Allowing Greece to benefit from low ESM interest rates for longer might also allow the country to lower its debt by 84% of gross domestic product by 2060.

That would entail an extension of the grace periods on existing debt by six years in the case of ESM loansa, and by between 17 and 20 years in the case of lending extended under the EFSF and GLF, the IMF explained.

Interest rates would also need to be kept below 1.5% until 2040.

However, the IMF noted that fixing the interest rates paid by Greece on its loans would be tantamount to member states compensating the ESM for losses associated with such a commitment or any such similar measure.

"This would clearly be highly controversial among member states in view of the constraints — political and legal — on such commitments within the currency union."