In order to make Greece’s debt sustainable in the long term, the IMF has determined that it must be cut to about 120 percent by 2020 and 110 percent by 2022. However, there is no guarantee that those levels will be sustainable on those dates.
As a result, the prospect of a debt writedown has to remain, especially as the eurozone countries, who will soon be responsible for about three-quarters of all Greek debt, have said time and again that they will do what is necessary to keep Greece afloat and in the eurozone.
The EU official said the best option would be for eurozone countries to bite the bullet and write down 40 billion to 50 billion euros of loans to Greece in 2016 or shortly afterward, so that its debt-to-GDP ratio is aggressively reduced and the country can more easily return to financial markets.
However, that is unlikely to happen, since no member state wants to write down any Greek debt, the cost of which would be born by taxpayers. Each state will do everything possible to ensure that any writedown, if it must happen, is as small as possible.
“If you were really going to help Greece, you’d write off enough debt to get the ratio down to 60 percent of GDP, which is a decently sustainable level,” the official said. “But that’s never going to happen. No one’s going to buy that.”
Instead, the possibility of debt forgiveness will hang over the eurozone for the next four years and will, whether countries like it or not, have to be tackled at some point.