The good and bad scenario for Greece

In this analysis, we will attempt to highlight the key points of the Eurogroup agreement in Malta as well as the “hidden” assumptions of the agreement, in an attempt to forecast a better view of the outlook for Greece for the coming months and years.

The initial agreement between Greece and the Eurogroup on Friday resulted in a significant development for the stabilisation of the Greek economy and makes the possibility of an early election in 2017 less likely. However, the final details have not yet been agreed upon, and the debate between the IMF and the Eurozone on the Greek debt relief remains. The cost of the delay in the conclusion of the second review has already harmed the Greek economy. Greece has lost its credibility, and the Greek government has lost the support of its voters.

The Agreement

The Eurogroup decided that the technical teams will return to Greece at the conclusion of the second review after the Greek government has accepted the following:

  • Reductions in pensions to save 1% of the GDP in 2019.

  • An increase of personal income taxation (through the reduction of tax reliefs) to save 1% of the GDP in 2020.

  • Greece will sell lignite and hydropower units of the Public Power Corporation (PPC) which corresponds to 40% of its electricity production capacity aiming at the reduction of its market share.

  • No changes in the labour market legislation until the program concludes in 2018. Greece will not reintroduce collective agreements, and the institutions do not ask for an increase of the limit of the collective layoffs in the private sector and the introduction of the lockout. Greece will only legislate the reduction of some benefits of the unionists

Critical Pending Issues

  • Recalculation of the fiscal gaps and an examination of the need for additional measures due to the delay in the negotiations.

  • No agreement on the set and the mechanism of enabling anti-austerity measures after 2018 if Greece achieves a primary surplus over 3.5% of the GDP.

  • Initial but not final agreement on the composition and the implementation time of the medium-term measures for the Greek debt relief.


Recently, Eurobank estimated that the negative impact of the GDP shortfall in Q1 2017 has a cost for the 2017 growth rate of 0.6 percentage points. Eurobank notes that this does not consist of a forecast for the growth rate in 2017 but it regards the negative impact of the GDP’s performance in Q1. Nevertheless, this impact equals to around 1.1 billion Euros; almost the half reductions in pensions in 2019.The positive impact from the conclusion of the review, the upcoming medium-term measures for the debt, and the inclusion of the Greek bonds in the ECB’s

The positive impact from the conclusion of the review, the upcoming medium-term measures for the debt, and the inclusion of the Greek bonds in the ECB’s measures may reduce the above costs. However, analysts consider that the positive effects cannot offset the overall cost, especially in 2017, and a part of the GDP’s growth rate shortfall will be carried over in 2018. This makes more difficult for Greece to achieve its targets for GDP and primary surplus in 2018. On the other hand, reportedly, the Greek government has reiterated that the legislated increases in indirect taxations are adequate.


In our view, on the political stage, there are two risks which relate to the fragile Greek government and the unwillingness of the Eurozone to offer something positive to the Greek premier to communicate to his audience.

Although the Eurogroup’s agreement gives the Greek premier time to postpone early elections, it is considered that it cannot be later than mid to late 2018. Otherwise, the Greek premier should sign the reduction in pensions by 5% to 35% (to save 1% of the GDP in 2019) by the end of 2018 or early 2019. Note that if there are no early elections, national polls for Greece have been scheduled for 2019.

The above outlines the best case scenario. An adverse scenario forecasts that the Eurozone and the IMF will reach an initial agreement on the medium-term measures for the Greek debt relief, but they will address the details and the implementation after Germany’s elections (24 September 2017), ie., in Q3-Q4 2017 or likely in 2018. This promise will not give the Greek premier a reason to positively narrate the rationale for him to accept tough measures for the years after the end of the program.

In this scenario, the Greek premier should implement tough measures in 2017 and 2018, leaving the debt relief to the next government in 2019. Thus, political analysts believe that if the creditors limit their decisions for the Greek debt to a new promise for 2018, the Greek premier will likely decide on early 2017 autumn elections.

New MoU & the IMF

Regardless of how it would be named (e.g., fourth MoU, new program, extended program, open credit line, etc.), the new measures totalling 2% of the GDP for the years 2019 and 2020 after the end of the current one consist of a kind of a new program.

Reportedly, the IMF asked the Eurozone for one more precondition in order for the Fund to decide on its participation in the program: The IMF will decide if and how Greece will exit the bailout program, if the country needs an additional program, and if and how Greece can exit the markets. The IMF asked the Eurozone for this additional term in order to ensure that the country will remain well financed in case the Fund participates in the program and the measures for the debt relief, which will be decided by the Eurozone, are not enough (according to the IMF’s debt sustainability analysis). According to Eurozone sources, the Eurozone (Germany) appears to have accepted this term. However, the Eurozone has excluded the possibility for additional funding to Greece. Kathimerini daily reported that the IMF and the ESM have examined alternatives for a “fourth MoU” in conjunction with Greece’s financing directly from the markets.

Option 1: Bridge loan or a precautionary credit line up to 15 billion Euros to Greece.

Option 2: ESM will guarantee up to 50% of new Greece’s debt issuance.

This discussion has just started, and an initial framework is not expected earlier than June or July, while the final details may be decided in 2018 or later.


Taking into consideration all of the above facts and estimations, we look at the glass ball and make an attempt to address a timeline for the upcoming events.



Baseline Scenario

Worst Case Scenario

10 April

Meeting of Lagarde (IMF) with Merkel (Germany) on the Greek debt relief.

Agreement on debt relief measures which will satisfy the IMF.

Agreement on principles without specific measures or a timeframe.


Technical teams in Athens

Technical agreement (Staff Level Agreement). Greece votes on the required bills for the conclusion of the second review after the Easter Holidays.

No technical agreement on fiscal gaps in 2018 and set of anti-austerity measures. Talks will continue in May.

21 April

2016 fiscal figures

The Hellenic Statistical Authority (ELSTAT) releases its official report on the 2016 fiscal year Greece achieved a higher primary surplus (3.8% of the GDP) than the targets (0.5%). From 3.8%, 2.5% can be retained in the following years because it is derived from permanent structural measures.

21-23 April

IMF/World Bank Spring Summit

Specific measures and timeframe for the debt relief which satisfy all parties.

The Eurozone ensures that Greece will remain well financed. No specific details or timeframe.

24 April

2016 fiscal figures

Eurostat confirms ELSTAT’s and Greece’s figures announced on 21 April.

Eurostat confirms Greece’s figures, the European Commission avoids confirming that a primary surplus of 2.5% can be carried over in 2017, and the IMF doubts this positive effect from 2017 onward.

22 May


The Eurozone approves the compliance report, concludes the second review, and disburses roughly 7.5 billion Euros to Greece. In the best case scenario, this may happen earlier than 22 May. Also, the Eurogroup announces the specification of the debt relief measures.

There is no full agreement, and the Eurogroup decides on either a partial disbursement of the bailout tranche, or disbursement in tranches with milestones, or the talks will continue in June. No agreement and announcement on debt relief measures.

8 June


Includes the Greek bonds in its QE program.

Does not include the Greek bonds in the QE program and abandons the waiver for the financing of the Greek banks (or, early July)


IMF participation

Decides on its participation in the program with financing.

Postpones its decision for July.

17-20 July

Debt repayment

Greece repays 7.5 billion Euros to creditors (private sector, ECB, EIB, and IMF)

Greece cannot repay all its debt obligation and a partial disbursement will be released by the ESM. The overall obligation is paid but the ECB stops accepting Greek bonds as collateral for financing the Greek banks (waiver). Political developments may be triggered.

(Less likely scenario, in our view).

27 August

Debt repayment

1.6 billion Euros to the ESM

The Greek government considers early elections in autumn.



Early elections


Trial access to markets and new debt of 2 billion Euros and/or bond exchange (refinance) which matures in 2019.

H1 2018


The institutions estimate that Greece achieves its targets in 2018 and probably will exceed the targets in 2019.

The institutions estimate that Greece will not achieve its targets in 2019 nor will it exceed the target of a primary surplus of 3.5%. No possibility for anti-austerity measures in 2019.


The Greek government will communicate access to the market, the improvement in economic sentiment, and the adoption of anti-austerity measures for 2019.

H2 2018

The Greek government should sign the reduction in pensions to save 1% of the GDP from January 2019.

The Greek government signs the reductions but the negative impact is offset by the overall improvement of the Greek economy and a new guarantee by the Eurozone for the third round of debt relief (long-term measures).

The Greek government does not sign and aims for early elections.

This may happen in H1 if there are strong indications that this decision is not inevitable.

H2 2018

End of the program

(August 2018)

Precautionary credit line or guarantees from the ESM to Greece to access markets and finance its needs.

A new bailout program (even smaller than current) with the participation of the IMF is necessary until 2022 to 2024 (or farther). Otherwise, the IMF will withdraw its participation.



Planned national elections.

Early elections decided before the current program ends in August 2018.


Greece access to markets with the guarantee of the ESM.

New MoU

Image: © Cristian Marty |

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