Greece Gets Bailout Extension but Not the Money
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Eurozone leaders have agreed to give Greece two more years to meet its deficit reduction targets. However, no decision has been made on the latest 31.5 billion euros tranche of bailout funds, a lifeline that the debt-stricken country desperately needs by Friday to avoid a default.
Eurozone leaders have agreed to give Greece two more years to meet its deficit reduction targets. However, no decision has been made on the latest 31.5 billion euros tranche of bailout funds, a lifeline that the debt-stricken country desperately needs by Friday to avoid a default.
Eurogroup finance ministers yesterday endorsed a proposal to extend from 2014 to 2016 a deadline for Greece to reduce its budget deficit, but the negotiations led to clashes between the IMF and eurozone over a longer term target date to shrink the country’s debt pile.
According to a report by the Financial Times, IMF chief Christine Lagarde and chair of the eurogroup finance ministers Jean-Claude Juncker“ publicly sparred over whether Greece must reduce its debt levels to 120 percent of economic output by 2020, long viewed the target to get Athens back to a sustainable debt level.”
Juncker said the new target should be an overall of 120 percent of GDP by 2022 but Lagarde is insisting that creditors stick to the 2020 timeline as originally envisaged.
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A mutual agreement between the IMF and eurozone governments is necessary before Greece can receive its next tranche of 31.5 billion euros aid payment as both creditors disburse financial assistance concurrently.
Greek Prime Minister Antonis Samaras has warned that without the new funds Greece will run out of money by Friday. The country has a bond payment coming due this week, but EU Finance Commissioner Olli Rehn said Athens would be able to roll it over and didn’t need the loan installment.
[quote] However, a draft copy of the compliance report by the European Commission, the IMF and the European Central Bank, collectively known as troika, calculated that giving Greece two more years to meet its immediate debt targets would leave a financing gap of 32.6 billion euros – a sum that will be added to the total cost of the bailout. [/quote]
It is estimated that 15 billion euros would be needed through 2014 and another 17.6 billion euros “if the fiscal adjustment path is extended by two years.”
The draft report also added that “maintaining the original two-year adjustment period would have implied an unrealistically high annual consolidation effort and compounded the recession in the short-term.”
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