Greece's economic downturn 'substantially worse than

Greece, we all knew, will get its next €8bn signed off by eurozone finance ministers tomorrow, bringing the total bailout so far to €73bn. But the 106-page Troika report, prepared by the European commission with the ECB (it says, ignoring the IMF), paints a pretty horrific picture of the Greek economy which, it says, will contract by 15% from 2009 to 2012. Surprise surprise, therefore, "government debt dynamics remain extremely worrying," even though the July 21 decisions this year, including private sector involvement (PSI), have lowered substantially the Greek government's financing needs "for a decade,"it says.

Now comes the big bazooka of a warning: "However, in a scenario in which policy implementation going forward is weak, this should not suffice for the debt dynamics to be described as sustainable." But the report does not (yet) enumerate the new gross debt ratio - or the higher level of PSI required. This will be sent to the eurogroup of finance ministers tonight for their talks tomorrow.It was more than 140% of GDP at the end of last year and reports suggest it now stands at 180% - clearly unsustainable. The report spells out that the peak level depends on the PSI..."However, the debt ratio will remain at very high levels fir many years and would be vulnerable to adverse shocks. When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated, given delays in the recovery, in fiscal consolidation and in the privatisation plan as well as the perspective of bank recapitalisations."