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Troika Report
privatization plans should bring in 30 billion, covering one-third of the needed funds. But a new bailout for Greece could be a tough sell for the euro-zone member states, which will have to get their national parliaments to approve a new package. The German government will find that especially difficult, given domestic resistance to providing Athens with more funds. Fears of another Lehman In May 2010, the European Union and the IMF put together a 110 billion rescue package for Greece. The original bailout plan foresaw Greece returning to capital markets in 2012. Until then, the so-called troika of the European Commission, ECB and IMF needs to transfer money to the highly indebted state at regular intervals. Without this support, Greece would effectively be bankrupt. Presently, few investors are willing to lend the country money, and those who are would demand a staggeringly high interest rate of 15 percent. Investors consider the risks to be too great. Many experts believe that a Greek default could have horrendous consequences, with some even fearing it would cause the breakup of the euro zone and lead to turmoil in the financial markets. The fallout might even exceed the impact of the Lehman Brothers bankruptcy in 2008, which triggered the global financial crisis. According to the troika report, it will be difficult for Athens to regain the necessary investor confidence that would allow it to borrow money on the capital markets. "The recession appears to be somewhat deeper and longer than initially projected," the report reads. The country's gross domestic product (GDP) shrunk by 4.5 percent in 2010, the authors write, more than had been assumed at the start of the rescue efforts. The EU-IMF aid is paid out in tranches, with each new installment dependent on Athens meeting certain conditions in sorting out its finances. But reforms aimed at reducing the country's huge levels of public debt -- which currently stands at around 350 billion -- have stalled. Although the Greek government made a "strong start" in reducing its macroeconomic and fiscal imbalances, the implementation of necessary reforms has come to a "standstill" in recent quarters, the report reads. Greater efforts are needed to combat the country's rising public debt, the troika says, arguing that structural reforms that would underpin the economic recovery need to be stepped up. In 2010, Greece's budget deficit was equivalent to 10.5 percent of GDP -- way over the 3 percent allowed under euro-zone rules. But Athens is struggling to reduce its debt burden, because tough austerity measures are hindering the economic growth that is necessary to generate tax revenues. "If no action was taken, the government deficit in 2011 would remain close to the 2010 level," the report reads. Private Creditors Bailing Out Meanwhile, the German government, which had said it would wait for the
publication of the troika report before deciding how to proceed, has been trying to win support for a new rescue package for Greece. On Wednesday, Chancellor Angela Merkel and Finance Minister Schuble argued in favor of a new bailout during a meeting with the parliamentary groups of the governing parties -- the conservative Christian Democratic Union, its Bavarian sister party the Christian Social Union and the business-friendly Free Democrats -- according to participants quoted by DPA. Merkel also expressed her support for Schuble's initiative to involve private creditors in a new rescue package. The only problem is that there are fewer and fewer private creditors to involve. Private institutions are selling off Greek government bonds on a large scale amid fear of a default or a so-called haircut. It is mainly public institutions such as Germany's state-owned regional banks and the European Central Bank who still hold Greek bonds. According to a report in the German daily Die Welt, German insurance companies now only hold 2.8 billion in Greek debt, down from a total of 5.8 billion just a year ago. Similarly, German banks have sold off around a third of their Greek debt since May 2010, according to new Bundesbank figures quoted by the Financial Times Deutschland on Thursday. German banks only held around 10.3 billion in Greek bonds in January and February 2011, compared to 16 billion in April 2010.
URL: http://www.spiegel.de/international/europe/0,1518,767559,00.html RELATED SPIEGEL ONLINE LINKS: Berlin Warns of Possible Greek Insolvency: German Finance Minister Calls for Athens Debt Restructuring (06/08/2011) http://www.spiegel.de/international/europe/0,1518,767371,00.html Desperate Bid to Cut Deficit: Greek Privatization Plan Faces Massive Domestic Resistance (06/07/2011) http://www.spiegel.de/international/europe/0,1518,767199,00.html Dignity and Democracy: Escaping the Clutches of the Financial Markets (06/03/2011) http://www.spiegel.de/international/europe/0,1518,766518,00.html The Haircut War: Tensions Worsen Between Berlin and European Central Bank (05/30/2011) http://www.spiegel.de/international/europe/0,1518,765601,00.html Interview with EU Currency Commissioner Rehn: 'There Is a Certain Aid Fatigue in Northern Europe' (05/30/2011) http://www.spiegel.de/international/europe/0,1518,765646,00.html Consequences of Debt Restructuring: What Would a Greek Haircut Mean for Germany? (05/27/2011) http://www.spiegel.de/international/europe/0,1518,765318,00.html SPIEGEL 360: The Euro Crisis http://www.spiegel.de/international/topic/euro_crisis/
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