Brussels, 18/12/2012 (Agence Europe) - Greece will receive all of the first batch of the €34.3 billion of aid by Wednesday, after a €7 billion batch of aid received on Monday. The country's troika of lenders (the European Commission, the ECB and the IMF) has given the go ahead for the disbursements now that the government has got the second Greek bailout programme of austerity measures (strings attached to financial aid for the country) back on track. A European source said that resistance to the measures was, however, a major risk factor for restoring the country's finances, and this danger is highlighted in the progress report published by the Commission on Monday.
The report welcomes the agreement between the eurozone and IMF for getting the Greek debt back on track. Despite a partial writedown in Greek bonds in the spring, the debt threatens to reach 190% of GDP in 2014 because of the shrinking of the Greek economy and low proceeds from privatisation. After tough talks, the country's lenders agreed that the following debt to GDP ratios need to be achieved: 124% in 2020, and 'substantially' below 110% in 2022.
More than 75% of the country's bonds in public ownership. Greek public debt currently stands at 144% of GDP, but the current buy-back of bonds still in private hands (see EUROPE 10751) should cut the debt by 9.5%, confirmed Athens on Monday. More than three-quarters of the country's debt is now in public ownership (central banks and the like). A raft of measures (interest payment holiday, reduction in interest rates and debt buy-back) should reduce the debt to 128% of GDP in 2020. In order to achieve the target, the report points out that the troika believes further measures will be needed once Greece has met its deficit reduction targets in 2016. The ten-year interest rate payment holiday on loans from the EFSF will not offer much in the way of respite because interest will be payable on the interest, and this will have to be paid at some point.
This year, 2012, was a turning point in the two financial programmes for Greece since 2010. Several events led to a tightening of the aid requirements and the introduction of a second bailout of €130 billion and a voluntary writedown of privately owned Greek bonds to remove €107 billion from the country's debt.
The recession is worse than expected and is not threatening to lift any time soon. The Commission's report says that 2013 will be the sixth year in a row of the economy shrinking (despite a slight upturn in the last quarter of this year). The economy is expected to return to growth of a meagre 0.6% of GDP in 2014. Faced with this situation, the eurozone has granted Greece and extra two years, until 2016 rather than 2014, to achieve a primate budget surplus of 4.5% of GDP.
Political disorder in the spring of this year plunged the country into further uncertainty. A European source says the big problem was the fact that the reforms were not being implemented, which undermined the programme's credibility. Austerity measures totalling some €18 billion from now until 2016 was narrowly voted through by the Greek parliament in November, including spending cuts and reductions in pay and pensions. A quarter of the package will come from new taxes and there are also measures to make the labour market more flexible.
Privatisation did not bear the expected fruit in 2012, although the process now seems to be rolling (since September). The sale of the country's silver is expected to net €8.5 billion by 2016, but the report notes that there is doubt that the privatisation process will properly managed.
Restoring healthy banks. Improving the balance sheets of Greek banks is a collossal challenge. Of the €49.1 billion to be lent to the country by April 2013 from the EFSF, €23.2 bn will be used to bail out Greek banks. (EL/transl.fl)