Greece: troika to audit country’s progress on debt reduction

Representatives from the troika of international lenders arrive in Greece on Tuesday to assess its progress towards reducing its huge debts.

They must decide whether Greece is eligible to receive 31.5 billion Euros – the last tranche of a 130 billion Euro ($158 billion) aid package agreed in March.

Athens is behind in its plans to cut spending and debt because its economy is shrinking faster than forecast.

The Greek prime minister is expected to ask for more time to repay its loans.

The International Monetary Fund (IMF), European Central Bank (ECB) and European Commission (EC) make up the troika.

The IMF said it was “supporting Greece in overcoming its economic difficulties” and would work with the country to get it “back on track”.

However, reports over the weekend suggested that the IMF would refuse calls for further aid.

Greece has promised to reduce its budget deficit to below 3% of annual national income as measured in Gross Domestic Product (GDP) by the end of 2014. At the end of last year, Greece’s overspend was equivalent to 9% of GDP in 2011.

Successive Greek governments have managed to trim 17bn euros from government spending. That has brought the country’s total debt down from more than 160% of GDP to 132% according to official figures released on Monday.

Under the terms of its international loan agreement with the troika, Greece has vowed to reduce its total debt to 120% of GDP by 2020.

However, Prime Minister Antonis Samaras would have had to have raised another 12 billion Euros through higher taxes and the sale of public assets such as the country’s loss-making railways to have met this bailout target.

Still worse, Greece’s economy is shrinking faster than most had forecast. The Bank of Greece expects GDP to shrink 5% this year in its deepest recession since the 1930s.

As a result, economists calculate that Greece may need a third rescue package worth up to 50 billion Euros.

The re-run of general elections and political instability as parties scrambled to form a governing coalition has delayed work by the troika and the government to agree a credible plan to restore the nation’s finances.

A European Commission spokesman said the troika would not be in a position to report its findings and release the final 31.5 billion euro installment of bailout money until September.

“The Commission is confident that the decision on the next disbursement will be taken in the near future, although it is unlikely to happen before September,” he said.

That leaves Greece in a difficult situation. A 3.8 billion euro debt repayment to the ECB falls due on 20 August. Without the troika money, the ECB may be forced to step in to provide temporary aid.

But further debt repayments are due in September so failure to secure the bailout money could push Greece to the brink of insolvency.

If Greece were to default on its outstanding loans that, in turn, could force it to exit the eurozone and return to the drachma.

*Troika

The term used to refer to the European Union, the European Central Bank and the International Monetary Fund – the three organizations charged with monitoring Greece’s progress in carrying out austerity measures as a condition of bailout loans provided to it by the IMF and by other European governments. The bailout loans are being released in a number of tranches of cash, each of which must be approved by the troika’s inspectors.