The International Monetary Fund (IMF) has said that Greece needs the backing of the Eurozone in order for there to be any chance of it paying back the bailout funds it has been given.
To meet its 2020 debt target of a fall to 124 per cent of GDP from this years’ peak of 176 per cent, the IMF says, Greece will need debt relief equivalent to four per cent of GDP, or €7.4bn.
And over the next two years, Greece faces a €10.9bn “financing gap”, with the country needing to find an additional €4.4bn in 2014/15 and €6.5bn in 2016.
The IMF said that while it is still too early to say for certain, the eurozone may need to take losses on loans to Greece. This statement will likely stir up further political turmoil in Germany around election time.
German chancellor Angela Merkel and finance minister Wolfgang Schauble of the Christian Democratic Union party have opposed an immediate debt haircut in Greece - although they have kept the door open for one in 2014. Vice chancellor Philipp Roesler of the Free Democratic Party, meanwhile, has insisted that there are no shortcuts to recovery like bailouts and haircuts.
The German government has since reaffirmed its opposition to a second haircut on Greek sovereign debt, partly on the grounds it could unsettle Eurozone investors.
“It is clear that the federal government does not see such a second debt haircut," finance ministry spokesman Martin Kotthaus said at a regular government press conference in Berlin.