Greece: a step back from the brink - for now
3 Jul, 2011 11:40
The fifth aid tranche approved by eurozone finance ministers has bought Greece some short-term relief. But with sobering prospects of a second three-year financial rescue plan, the country may find itself on the brink of default once again.
After a two-hour conference call on Saturday, the 17 eurozone ministers said they would release their part of the financial support to Greece – 8.7 billion euros – by July 15, after the decision is confirmed by the IMF. The remaining part of 12-billion-euro tranche will come from the International Monetary Fund. The IMF is expected to approve its current contribution, 3.3. billion euros, in the coming days. The 12-billion-euro loan, expected as part of a 110-billion-euro bailout package agreed upon last year, will reach the country following two votes in the Greek parliament on new tough austerity measures, including radical tax increases, pay cuts and privatizations.Greeks now face 28 billion euros in cuts, to be implemented over the next five years. The government will also push ahead its plans for the sale of many Greek assets. Potentially up for grabs for EU lenders are Greek banks, water companies, and train operators among many others. A 16-per cent stake in the large telecommunications company OTE is also up for sale.Without the loans, the Greek government was at risk of defaulting on its loans on July 15. EU officials have welcomed the plan, saying it will help the country get back on to a path of recovery. The eurozone finance ministers even decided not to meet in person for an extra meeting in Luxemburg on July 3, but limited themselves to a conference call, in a gesture of approval of the new austerity package and acknowledgement that the tranche is now purely a technical procedure. But the public are not at all happy with the government pushes ahead.Tens of thousands of people took to the streets across Greece on Wednesday in a 24-hour general strike in protest against the government's agreeing to the austerity measures required as a pre-condition for the fifth tranche.But experts say the Greek crisis is far from over yet. The European bailout plan will keep Greece afloat for only several more months before it again has to confront the prospect of default or a radical restructuring of its debt.According to Russia’s RIA Novosti news agency, the trio of the European Commission, European Central Bank and the IMF has prepared an unpromising report on the country’s state of economy. The report states that Greece will be unable to return to borrowing money on the capital markets in 2012 as previously foreseen, and a further massive bailout will be needed soon.European Union leaders are now putting forward the details of the second financing program for Greece. It will come on top of the existing 110-billion-euro plan agreed with the eurozone countries and the International Monetary Fund last year. The EU officials said finding of the second financial plan would be both from public and a substantial, but voluntary, contribution of private investors via Greek debt rollover. The external financing for the country could be about 80-90 billion euros, while Greece is expected to raise another 30 billion euros from privatization. The eurozone finance ministers are set to finalize the details of the program at a meeting on July 11, but there are reports it may be delayed until September.