- Athens new budget projections exceed worst-case scenarios of international lenders
- Debt will hit 189% of economic output and climb to 192 per cent in 2014
- Higher than predicted when lenders agreed to a €174bn rescue eight months ago
- EU officials acknowledged they may have to give Athens more leeway to hit target
The magnitude of Greece's fiscal challenge was painted in sharp relief on Wednesday as Athens unveiled new budget projections exceeding the worst-case scenarios envisioned by international lenders when they agreed a €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 that Greek debt will 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.
The scale of the faltering has yet again put Germany and other eurozone creditors in a political quandary, forced to come up with as much as €30bn in new funding to meet Greece's needs for an overhauled bailout though 2016, despite strong resistance at home to any new aid.
"[It] is not exactly a surprise, but it's going to stir debate on Greece's future funding," said one Greek official.
Eurozone finance ministers began to lay the groundwork for a deal in a conference call on Wednesday, where each country laid out red lines, according to people briefed on the discussions. Germany has ruled out additional aid or taking losses on existing bailout loans to lighten Greece's debt load.
Instead, EU officials said they were looking at three possible solutions to close the gap: further lowering interest rates on bailout loans; buying back Greek bonds at current depressed prices and retiring them; or striking a deal with the European Central Bank not to take profits on the €55bn in Greek bonds it holds. Officials said the eventual solution was likely to be a combination.
After the call, Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup, said he aimed to have the deal completed for the next formal meeting on November 12, though officials said it could be decided as early as next week if agreement was reached earlier. Staff for the "troika" of international lenders are due to present a detailed plan for closing the financing gap in a matter of days.
"We still have to decide on how to reduce the debt burden," said Olli Rehn, the EU's top economic official. "We are working intensively and in a very good spirit with our troika partners in order to present our joint conclusions before the next eurogroup meeting."
In addition to the budget, which will be voted on by the Greek parliament the day before the eurogroup meeting, Greek legislators must also approve measures implementing a series of agreed reforms and austerity measures negotiated with the troika.
EU officials said Antonis Samaras, the Greek prime minister, was expected to present those measures to parliament on Monday and push them through under emergency procedures by Wednesday.