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Impressively enough Greece is somewhat similar to Japan

23 November 15 | Klaus Regling
Klaus Regling

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IBI Group

Consultant - GREECE

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Antulio Richetta

Director IBI Group
Greece is capable of achieving the growth rates that will enable it to pay off its debts, European Stability Mechanism (ESM) Managing Director Klaus Regling said in an interview with the Hong Kong newspaper "South China Morning Post" published on Monday.

 

Asked whether Greece could realistically grow at a rate that would allow it to pay back its debt "and support the social infrastructure that is expected of a Western government," Regling replied: "It is possible. There is no doubt about that."

According to the ESM's head, the lending terms to Greece were so favorable, with such low interest rates and long maturities, that "the debt stock itself is not very meaningful when we try to assess the debt burden on Greece."

"It is much lower than the debt to GDP ratio would suggest. It is a little bit comparable to Japan where we have a debt to GDP ratio of almost 250% but obviously Japan has no problem servicing it because the interest rates are very, very low. So it is a little bit in that direction.

The other side of the equation is indeed: what is a reasonable expectation for growth for Greece in the future.

We saw that growth came back last year with the right policies." Regling noted that the return to growth was interrupted for about 6-7 months because the government elected on January 25 "tried a different approach," and "reversed some of the reforms".

"But we know from the experience of last year and from the assessment of the institutions that with the right reforms Greece can have a good growth performance."

"The OECD has said that with the right reforms Greece can have the highest potential growth rate in Europe," he pointed out.

"At the same time they get all this very favorable lending from us. So it can add up. After a while the debt can begin to fall and they can grow out of their problems.

This is possible but it requires a continuation of the reform efforts," he added.

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