New debt forecasts dash Greece hopes

The magnitude of Greece’s fiscal challenge was painted in sharp relief yesterday as Athens unveiled new budget projections exceeding the worst-case scenarios envisioned by international lenders when they agreed an €174bn rescue eight months ago.

Instead of Greece’s debt peaking at 167 per cent of economic output next year, as predicted in the March bailout agreement, it will hit 189 per cent and climb to 192 per cent in 2014, according to projections presented to the Greek parliament.

Even under an “alternate scenario” prepared by the International Monetary Fund in March, which attempted to project a pessimistic economic and fiscal picture, Greece’s debt was only predicted to peak at 171 per cent of gross domestic product.

The new projections all but dash hopes Greek debt would come down to 120 per cent of GDP by 2020 – once held out as the standard for a manageable debt load – and senior EU officials acknowledged they may have to give Athens more leeway to hit that target under a revised rescue currently being negotiated.