Troika review almost over but how much money is Greece going to get?

BRUSSELS – Greece and the troika of its international lenders (EU, ECB, IMF) are closing in on a deal that will allow the eurozone finance ministers, who convene on Monday in Brussels, to decide “in principle” the disbursement of the next tranche from the gigantic bailout facility to Athens.

Government sources told Kathimerini that the only open issue that remains is the demand for a reduction in the VAT charged in the food service sector. Troika officials have made clear in the past that they think reducing VAT in restaurants is an unproductive way to use any fiscal room that Greece may have. On the other hand, VAT reduction in restaurants was a basic post-election promise of the coalition government, since the two governing parties believe that it will boost Greek tourism, the major source of income for the cash-strapped Mediterranean economy.

Another open issue is how much money Greece is going to get. EU officials have told Kathimerini that the final decision will be taken on Monday morning by the Euro Working Group – the council of eurozone technocrats who meet ahead of the finance ministers – depending on Greece’s financing needs, assuming of course that the troika review will be successfully concluded by then.

Overall, Greece has now received from the European Financial Stability Facility (EFSF) 130.6 billion euros out of the total committed amount of 144.6 billion. Kathimerini understands that the most likely scenario is that the next disbursement, scheduled for later in July, will be 4.8 billion euros, subject to the completion of agreed policy measures (the so-called “prior actions”).

This tranche will be probably split into two sub-tranches, to be disbursed in July and September. Based on the latest Troika scenario, the July disbursement may be raised from 2 billion foreseen in earlier scenarios, in order to cover Greece’s fiscal needs. The precise amount of each sub-tranche is still being debated, Kathimerini understands.

Also Greece is counting on a transfer of SMP income in July, if it succeeds in completing the on-going review, subject to compliance with the same prior actions as for the tranche. This «SMP income» is the profits made by the national central banks of the eurozone and the ECB on their portfolio of Greek government bonds, which were bought in the context of the “Securities and Markets Programme”, when the eurozone crisis first started.

The so-called Eurosystem (the network of national central banks in the Eurozone) have agreed to return these profits to Greece. But the disbursement, which takes place through the national governments, the main shareholders of central banks, will also depend on a positive decision by Monday’s Eurogroup. Finally, Greece hopes to secure up to 1.8 billion euros later in July from the IMF, if the troika review is successful. After that point, the IMF will cease payments to Greece, because of the funding gap in the Greek program in the second half of 2014. The IMF cannot participate in an adjustment program if it is not fully funded for the next twelve months. Hence, Greece hopes to secure enough cash in July to allow sufficient time for its lenders to discuss the issue of the funding gap, and possibly a third Greek program this autumn, after the German elections.

The Greek finance ministry believes that SMP profits, together with the IMF and EFSF tranches are enough to keep the country afloat at least until the end of the year. The precise timing of the funding gap depends on several factors, including budget performance and privatization revenues. But given the current pace of disbursements, the Greek program money is running out even faster than the most pessimistic estimates. The fact that 4.8 billioneuros may be disbursed from the EFSF on Monday, instead of two billion anticipated, means that there will be just over 8 billions left in the Greek program.

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