Troika: Greek risks remain very large

A row between the IMF and the EU over Greece broke into the public last night as the two bodies differed on when Greece’s debt should be down to 120% of GDP.

Eurogroup chairman Luxembourg prime minister Jean-Claude Juncker insisted that Greece would be given an additional two years to 2016 while IMF chief Christine Lagarde sitting beside him at a press conference shook her head, saying it would remain at 2012.

Afterwards officials said that Mr Juncker was “a little premature” as they did not wish to announce the two extra years until next week when they hold another meeting on Greece.

Greece’s future within the eurozone hinges on the troika’s debt sustainability analysis, which was still not complete as eurozone finance ministers discussed the latest report on the country’s finances last night in Brussels.

Greece will need an additional €32.6bn on top of the €148bn it has already received just to limp towards a possible breakeven situation in the future, according to figures confirmed by eurozone finance ministers.

The odds appear to be stacked against Greece emerging from the austerity heaped on austerity and in the words of the long-awaited draft report from the troika, seen by the Irish Examiner, the “risks remain very large”.

EU experts have said that there will be no accidental default when the country needs to roll over €5bn on Friday, and the finance ministers are working to reach a conclusion on the latest Greek bailout before that date — possibly with another meeting or on a conference call later this week.

But before they can do so, they need to be convinced that the debt is sustainable over the next eight to 10 years.

The IMF insists that it must be cut from 190% of GDP to 120% by 2020, but the ECB and European Commission appear to have other dates in mind. Many of the countries will also need the agreement of their national parliaments to commit to paying out the latest and long-delayed tranche of bailout funds, and to give extra time and the money needed to reach the new target date of 2016 to reach a debt of 4.5% of GDP.

Ministers are also considering cutting the cost of €53bn of bilateral government loans to Greece, removing the 150 basis point interest above the cost of financing the money.

While the troika draft report says that the actions taken and achievements of the Greek government should not be under estimated, there is still a very long way to go in both structural changes and budget adjustments.

The economy is expected to decline for a fifth successive year this year with output falling by some 6%, and also in 2013 by a further 4.2%.

The turning point of the recession is not expected until 2013, leading to moderate GDP growth of 0.6% in 2014 and stronger growth of 2.9% over the following two years, the report says.

Consolidation measures during 2013-14 of another €13.5bn or 7.3% of GDP and a further adjustment of €4bn in 2015-2016 are needed. “The projections for the outer years are inherently uncertain and depend to a large extent on the strength of the recovery as well as yields from the programme measures implemented in preceding years, with some upside risks existing to the fiscal outcomes in outer years”.

The draft report warns that the risks to the programme remain very large, especially because the government coalition appears fragile, leading to concerns about their ability to implement politically sensitive changes.

They also warn that important budgetary measures are likely to be challenged in the courts, which could mean that fiscal gaps need to be filled while a return to growth is only possible when the structural reforms are fully implemented.

It paints a grim picture of what this will mean: “This will require breaking the resistance of vested interests and the prevailing rent-seeking mentality of powerful pressure groups.”

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