Greece needs €100bn debt relief as permanent depression looms

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National Institute of Economic and Social Research says Greek debt write-off must be much larger than IMF demands, as think-tank warns VAT hikes and budget targets are asphyxiating economy

Greece needs a debt write-down of almost €100bn (£70bn) if the country is to stand a chance of clawing its way out of a “prolonged and severe depression”, according to a leading think-tank.

In a stark analysis, the National Institute of Economic and Social Research (NIESR) laid bare the impact of VAT hikes and strict budget targets that it said could become “self-defeating”.

As Greek bank shares saw a third of their value wiped-off for a second day, NIESR’s analysis showed Greece’s economy will slump back into recession this year and next.

By the end of 2016, the economy is forecast to be 30pc smaller than at its peak in 2007 and 7pc smaller than before it joined the euro in 2001.

“We don’t see Greece getting back to the level it was when it joined the euro in 2001, let alone anywhere near where it was before this crisis struck, so this is a prolonged and severe depression for Greece,” said Jack Meaning, research fellow at NIESR.

Economists said Greece’s creditors would need to write-off or restructure €95bn of its €320bn debt pile, or around 55pc of gross domestic product (GDP), in order to reduce its debt stock to around 130pc of GDP, from a projection of 186.9pc this year.

NIESR said this would make an International Monetary Fund (IMF) debt target of 120pc of GDP by 2020 – which it considers to be the maximum sustainable level – “at least possible”.

The think-tank’s forecasts showed the economy is expected to contract by 3pc in 2015 and 2.3pc in 2016, remaining in recession until the second half of 2016.

Under current projections, Greece’s economy is not expected to get back to its pre-euro size until the first half of 2023.

Simon Kirby, principle research fellow at NIESR, said: “You have to go back to the Great Depression to find economies hit harder by crisis. The 1920s were bad enough for the UK and that was nowhere near this.”

Full article: Greece needs €100bn debt relief as permanent depression looms (The Telegraph)

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