The Case for a New Reprofiling of Greek Public Debt and Why a Relaxation of the Bailout Program’s Future Fiscal Targets May Prove to Be a Self-Financing Policy Shift
This chapter examines the future evolution of Greek public debt under various scenarios regarding the structure of a new debt relief package and the macroeconomic impact of a potential relaxation of the primary fiscal targets. In more detail, the debt relief structure analyzed herein involves both the EU bilateral loans (GLF) and the EFSF loans given to Greece in the context of the first and second bailout programs. Furthermore, the macroeconomic effects of the fiscal policy easing are quantified based on a number of discrete scenarios as regards impact multipliers, multiplier persistence and the existence or not of “hysteresis” effects. All in all, our analysis demonstrates that the negative effects on public debt and cash flow dynamics implied by a potential relaxation of the multi-year primary surplus targets may be offset, to a significant extent, by higher GDP growth (denominator effect) and its beneficial impact on key fiscal metrics (numerator effect).
KeywordsPublic Debt Debt Ratio Debt Relief Primary Balance Debt Restructure
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