Greece public debt close to 200% of GDP

Greek Prime Minister Tsipras has mentioned a "crucial 20 months" before considering tapping markets. 2 On the type of OSI, reducing the nominal value of the public debt by imposing outright haircuts is unacceptable politically for Europeans. 

The only realistic possibility is a further reduction in the net present value. With little leeway in terms of interest rates (two-thirds of public debt is EU loans, which are at Euribor + 50bp), a significant reduction may be achieved by extending grace periods (EFSF loans are already not due to be repaid until 2023) and/or maturities.

At c.178% of GDP (€312.8bn) in Q2 15, Greek general government debt is projected to rise to 198% next year according to the 2016 draft budget, as a result of new loans and deteriorating nominal GDP growth, estimates Barclays.

Although the interest rate burden is geared to be minimal (less than 4% of GDP - ie, below that of Italy or Portugal) relative to the sheer size of the public debt, debt restructuring is necessary to ensure a credible downward path of Greek debt and allow the authorities to return to the market by the end of the new three year program.