Tuesday September 30, 2014 Search
Weather | Athens
26o C
17o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
New aid gives Greece summer respite before showdown

By Deepa Babington

Greece has scraped through its biggest political and financial challenge this year by securing a tranche of aid from international lenders but the reprieve may only be temporary.

Crunch time for Athens will come at the end of September when EU and IMF inspectors are expected to return to discuss how to plug a budget gap for 2015 and 2016, raising the spectre of more austerity cuts that may spark a new political crisis.

Even if it survives that, Greece will still need more debt relief from the euro zone before it can get back on its feet.

On Monday the lenders approved 6.8 billion euros from an emergency bailout put together in 2012 to keep the economy afloat and prevent a deepening of the regional debt crisis.

The money spares Greece from defaulting on its debt in August and tides it over until after elections in Germany in September.

But Greece will only get the full amount if the coalition government led by Prime Minister Antonis Samaras speeds up reforms to get them back on the agreed schedule.

"It's certainly going to get tougher both economically and politically," said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels.

"They're kicking the issue a couple of months into the future ... we're going to continue with this charade between the troika and the government where everyone knows what's going on - that it's entirely unrealistic for Greece to live up to its expectations, both in the short and long term."

Talk of 'Greekovery'

After nearly crashing out of the euro last year, Greece's debt crisis appeared to have largely abated this year and Samaras had even started to talk about a nascent "Greekovery".

But the seven-month lull came to an abrupt end last month when the government nearly collapsed over the closure of its state broadcaster and 10-year bond yields shot up to over 11 percent from the single digit levels seen earlier this year.

The latest bailout review then showed that after three years and 200 billion euros in aid Greece remains in trouble. Public sector reforms are elusive, tax collection is anaemic, and debt is set to top 175 percent of gross domestic product this year.

Even if Greece can get through its next review, it faces a financing gap that is only likely to be resolved by additional debt relief, this time borne by euro zone states long fed up of Greece's seemingly unending funding needs and failure to reform.

Complicating matters further, the IMF increasingly faces a questions over whether it can keep supporting a program that may not bring Greece's debt down to a sustainable level.

With European paymaster Germany unwilling to risk a flare-up in the euro zone crisis before a national election, Greece faces its next major test in September when it must outline savings worth 4 billion euros to bridge a fiscal gap in 2015 and 2016.

Trying to plug it with more austerity could mean the end for Samaras's shaky two-party coalition, which already lost a junior ally in June when he tried to meet public sector layoff targets by shutting the state broadcaster ERT and firing 2,600 staff.

'Can't take any more'

Samaras has already ruled out any further austerity measures for a nation faced with a 27 percent jobless rate and the Socialist PASOK party - his only remaining ally - has made it clear it will not support another round of painful cuts.

"The economy and society can't take any more measures," a PASOK official said was the main message to the EU and IMF.

Previously agreed austerity plans are already showing the strains in Greece - municipal workers have called a series of strikes while ERT workers have mounted a successful legal appeal and continue to broadcast from their occupied headquarters.

With just a five-seat majority in parliament, Samaras will find it difficult to find a way to plug the budget hole while keeping his coalition intact, analysts say.

"The flexibility of introducing additional austerity measures over and above those in the current program would be an extremely difficult task for the government given the state of the economy and unemployment," said Platon Monokroussos, an economist at Eurobank.

Instead of socially explosive layoffs or wage and pension cuts, the government could try and bridge the gap by extending special taxes and levies when they expire or through higher revenues from tax collection, though whether that will be enough to convince the troika remains to be seen.

If the government survives that review without a fresh crisis, the focus will shift to closing the year with a primary surplus before interest payments. This would qualify Greece to seek further debt relief, which the IMF has been pushing for but the euro zone wants to avoid discussing until spring 2014.

Doubts about the future

After a restructuring last year of privately-held debt, over 90 percent of Greece's outstanding public debt of about 300 billion euros is in the hands of official creditors, mainly euro zone states and the European Central Bank.

Many economists believe restructuring that debt is inevitable to make the numbers add up over the long term, not least because Greece's economy has consistently missed growth projections, and few believe there is any other way to bring debt to below the 120 percent of GDP target level by 2021.

"From the Greek side, tidying up fiscally is not enough, structural changes in the economy are needed," said Nikos Vettas, chief of Greek think tank IOBE.

"From the part of creditors, action is needed so that the debt problem does not become a brake on growth - in other words relief commensurate to the course of reforms."

In addition, funding from Greece's bailout ends in 2014, but Athens' assertion that it could start tapping the bond markets from next year to tackle its future funding needs have appeared premature since yields soared in June.

The IMF - which does not expect Greece to return to markets before the end of 2016 - estimates Greece could face a funding gap of between 5.5 and 9.5 billion euros over 2015-2016.

Greece has relatively modest levels of debt maturing after 2014 - less than 10 billion euros annually until over 60 billion euros of debt comes due in 2042 so a small amount of debt relief to extend maturities could make a big difference.

But given Greece's history of failed reform efforts and missed targets there are many doubts about the future.

"What has the country really achieved? Fiscal adjustment and a reduction in labour costs. What they haven't achieved is structural reform across the board," an EU official said.

Even with reforms and economic growth, Greece may have to stay under a bailout programme for longer than currently foreseen, the official said. [Reuters]

ekathimerini.com , Thursday Jul 11, 2013 (11:41)  
Greek unemployment dips to 27 pct in June, but still highest in EU
EU gives more aid to farmers hurt by Russia sanctions
Greeks ruled ship market in August
Nine properties to be auctioned next week
Roma camp evacuation postponed; flow resumes on Mesogeion Avenue
Plans to evacuate and partially demolish a Roma encampment in the northern Athenian suburb of Halandri, erected nearly four decades ago on a site behind the present-day Nomismatokopio metro ...
EU must boost air, sea migrant rescues, says Amnesty International
BRUSSELS - The EU's new leadership must boost air and naval power in the Mediterranean to rescue migrants who are dying in record numbers trying to reach the continent's shores, Amnesty Inte...
Inside News
SOCCER
All team sports suspended next weekend in memory of dead fan
The government announced on Monday the suspension of all team sports events in Greece scheduled for next weekend, October 4 and 5, in the memory of the Ethnikos Piraeus fan who died a few ho...
SOCCER
Karamanos punishes Michel for deeming him surplus
Atromitos forced Olympiakoss first loss this season in all competitions on Saturday to allow PAOK to go alone on top of the Super League table on Sunday. Odds-on title favorite Olympiakos l...
Inside Sports
COMMENTARY
Next-day jitters
It is usual for Greek governments, whether one-party or coalitions (which are normally loath to actually work together), to claim that their only real challenge is dealing with the countrys...
EDITORIAL
No sweet debt deals
The lions share of Greeces debt is held by European Union member states and the International Monetary Fund. A writedown of the European part of the debt would require the approval of the ...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
RECENT NEWS
1. Greek unemployment dips to 27 pct in June, but still highest in EU
2. Roma camp evacuation postponed; flow resumes on Mesogeion Avenue
3. EU must boost air, sea migrant rescues, says Amnesty International
4. EU gives more aid to farmers hurt by Russia sanctions
5. Commissioner-designate Avramopoulos to face three-hour interview on EUs migration portfolio
6. Roma camp off Mesogeion Avenue set for demolition amid reactions
more news
Today
This Week
1. Next-day jitters
2. Roma camp off Mesogeion Avenue set for demolition amid reactions
3. No sweet debt deals
4. Commissioner-designate Avramopoulos to face three-hour interview on EU's migration portfolio
5. EU gives more aid to farmers hurt by Russia sanctions
6. EU must boost air, sea migrant rescues, says Amnesty International
Today
This Week
1. Alexander the Great's tomb not at Amphipolis, says Culture Minister
2. Greece may opt for unusual president to avoid snap polls, Venizelos says
3. Woman allegedly buried alive by accident in northern Greece
4. Salaries in Greece continue to slide, dipping 1.4 pct in Q2
5. Venizelos denies jihadis are being trained in Greece
6. Should you bet with Kissinger on where the world is heading?
Find us ...
... on
Twitter
... on Facebook
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright 2014, H KAΘHMEPINH All Rights Reserved.