Greece may need debt salvation, analyst says

Greece faces a big deadline in June 5 when the Greek government hopes to repay over $300 billion to the International Monetary Fund (IMF). 

But can the small island nation pull it off?

Looking at the situation in detail, an experienced analyst of financial markets thinks Greece is probably going to be unable to pay but that ultimately help will arrive for the country in some form, though perhaps not in the way that involved parties might prefer.

“In our opinion, Greece will find it difficult to meet the budget surplus target, and will need further support in servicing its debt,” Vivekananda Kar told Balkan Business Wire. “However, we feel that a debt level in excess of €300 billion is too big for Greece to be allowed to default on … even if the IMF does not join hands with the rest, we expect the Eurozone members to still bail out Greece in order to avoid a pan-Eurozone crisis.”

Kar is a manager of investment research and analytics at Aranca, a global research, analytics and advisory firm.

He pointed out that after three prior bailouts, Greece is back in regional news as a major tale of financial distress.

“The world’s attention is now back to the Greek debt crisis, after the headline-grabbing furor around events such as Donald Trump’s election and the U.K. triggering the Article 50 to enforce Brexit,” Kar said.  “With significant debt repayments due in July, all eyes have turned to the possibility of a further debt relief action saving the day for Greece.”

A troubling indicator, Kar said, is what some see as a stalemate he called a “circular loop” between Greece and Germany, its largest lender.

Germany, he said, demands that Greece implements reforms before there is a talk of any further debt relief. Greece plans to implement additional austerity measures only when debt relief provisions are included in the talks.

An April 10 Reuters piece illustrates this back-and-forth, reporting that the German government wants reforms first.

"We want first to get the reform measures agreed,” a German Finance Ministry spokesperson said in the article. 

Reuters reports the Greek response from Prime Minister Alexis Tsipras is that Greece will “implement additional austerity measures agreed with its official creditors on condition of further debt relief.”

Another player, the IMF, also has its own demands.

Kar said the IMF has been “reluctant to join the band” and has insisted on easing the debt burden for Greece, with a target set for a Greek budget surplus of 3.5 percent of GDP.

“The IMF is of the view that such a target would be difficult to achieve and the austerity measures could negatively impact the Greek economy,” Kar said.