Troika arrives, further cuts, new restructuring may be needed

Troika officials arrived in Athens on Tuesday to conclude an inspection on Greece?s fiscal program, as the government hoped that a visit by European Commission President Jose Manuel Barroso on Thursday might help lift the gloom surrounding the country?s economic prospects and chances of remaining in the euro.

The troika inspectors met with officials from the State General Accounting Office (SGAO), Finance Ministry and the latter?s General Secretariat for Information Systems. Their first task is to agree on the macreconomic data that will underscore the program. Sources said that the Finance Ministry believes the economy will contract by 6.2 percent of GDP this year, compared to a forecast of 4.8 percent. It forecasts a 0.9 percent contraction for 2013 and growth of 2 percent in 2015.

The troika will then attempt to work out if the deficit reduction target for this year can be achieved with just the measures that have been agreed or whether more will be required. The same will apply for the 11.5 billion euros in cuts for 2013 and 2014. The government believes that no new measures are required this year but officials at the SGAO believe that cuts for 2013 and 2014 may need to reach 14 billion euros.

Finance Minister Yannis Stournaras is due to meet the troika representatives on Thursday, when he will outline the savings for the next two years but details will not be given until inspectors return after August 20 to wrap up negotiations.

The issue of the sustainability of the Greek program and the country?s debt is also likely to come up during discussions. The matter was raised by European officials who spoke to Reuters on condition of anonymity on Tuesday. ?Greece is hugely off track,? one of the officials said. ?The debt-sustainability analysis will be pretty terrible.?

The official suggested that the restructuring of Greece?s official sector debt, held by the European Central Bank and its eurozone partners, could be a way to tackle the problem. ?This has not been explored yet politically because no one wants to launch that discussion,? the official said.

Greece?s privately-held debt underwent a haircut earlier this year with the aim of reducing its debt from about 160 percent of GDP to below 120 percent by 2020, which the International Monetary Fund has deemed sustainable in the long-term.

Meanwhile, the government is hoping that Barroso?s visit will help improve the negative feeling about Greece within the eurozone. According to sources close to Samaras, Barroso?s decision to visit Athens is being interpreted as a gesture of political support for Greece. But Barroso?s spokesman played down the significance of the visit, the first by Barroso to Greece in three years, noting that it was part of the official?s ?regular contacts.?

Samaras and Barroso spoke by telephone on Tuesday, according to sources in the premier?s office who said that the two men would meet on Thursday afternoon before having a working dinner. It is expected that Samaras will press Barroso to make good on pledges to boost sluggish growth in Greece and raise the possibility of future renegotiation of some of the terms of the country?s bailout. The meeting will come just a few hours before Samaras?s scheduled meeting on Friday with troika representatives.

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