On May 28 Greek
Finance Minister George Papaconstantinou
went into a temper tantrum over an article
in Der Spiegel that stated
Greece missed its financial targets.
Papaconstantinou noted
the report was not even
out yet adding, "I
have every reason to believe they will end positively for our country and that we will receive
the fifth tranche."
He may be correct about
the tranche, however, the report is now out and Greece flunked.
Financial Reforms at Standstill
The Irish Times reports Troika insists reforms
in Greece at a standstill
GREEK EFFORTS to stabilise
public finances and push through reforms have ground to a halt in the last quarter, according
to officials from the
IMF, the ECB and the European Commission.
The latest so-called
“Troika” report, seen
by The Irish Times yesterday, made a grim impression when presented to German MPs in Berlin yesterday evening.
At a crunch parliamentary party meeting, members
of the ruling Christian Democrats
(CDU) and Free Democrats (FDP) heard
that Greece will require fresh aid from
euro zone members because
of the “prohibitive” cost of the
alternative: returning to financial
markets.
“The financing strategy
needs to be revised,” said the report’s authors.
“Given the remoteness
of Greece returning to
the funding markets in 2012, the adjustment
programme is now underfinanced. The next disbursement cannot take place before this underfunding is resolved.”
“After a strong start in the summer of 2010, reform implementation came to a
standstill in recent quarters,” said the
report. Citing “clear
political risks” in
implementing the EU-IMF reform
programme, the authors warned
that “a reinvigoration is necessary to prevent the fiscal
deficit getting entrenched at unsustainable levels”.
At macro level, the troika said the Greek recession is “somewhat deeper and longer than initially projected”
– with 4.5 per cent economic
shrinkage last year and a further 3.8 per cent
contraction forecast this
year – but that
“the quarters of deepest
contraction may have already
been passed”.
Additional Details from Athens News
Athens News reports Troika report on Greece unveiled
"Tax
collection continues to underperform compared to plans, even after the downward revision agreed in previous reviews. Although part if this underperformance results from the severity of the recession and liquidity constraints faced by taxpayers, the several measures to fight tax evasion implemented
by the government have not been fully
effective yet."
"The previous review
mission (February 2011) identified
that, without additional measures, the fiscal
target for 2011 would be missed by at least three quarters of a percentage point
of GDP. In the meantime, the gap between fiscal projections and the deficit
ceiling has widened substantially. If no action was
taken, the government deficit in 2011 would remain close to the 2010 level, above 10 percent of
GDP."
Next Trance In
Question?
Please consider Next aid payment
not a done deal
Troika says 5th payment to Greece may have to wait; recession proves deeper, longer than expected
The European Union, European
Central Bank and International Monetary Fund mission to Greece said in a report on Wednesday that the next disbursement of Greek aid could not take place until it corrected the underfinancing in its adjustment program.
“The financing strategy
needs to be revised. Given the remoteness of Greece returning to funding markets in 2012, the adjustment program is now underfinanced,” it said. “The next disbursement cannot take place before this underfinancing
is resolved.”
The fifth bailout payment was due to be made in June.
News of a possible hitch in the next
disbursement of aid to Greece came as Germany’s
finance minister said private creditors must share the burden of more financial help for Athens in any deal to prevent the country
from defaulting on its debts.
In a letter sent to Jean-Claude Trichet, president of the ECB, the IMF’s
acting managing director
John Lipsky and other top
finance officials, Wolfgang Schaeuble
proposed a bond swap that
would extend debt repayments by seven years, giving Athens more time to reform its economy
and overcome the debt crisis.
Such a move has previously
been strongly opposed by
the ECB on the grounds it could
spread turmoil through the continent’s financial system, while rating agencies have warned it could be
considered a default.
Expect IMF Nose Job
The report was so bad it is
hard to say what the key point is, but near-term this is arguably the key quote:
“Given the remoteness of Greece returning to the funding markets in 2012, the adjustment
programme is now underfinanced. The next disbursement cannot take place before this underfunding is resolved.”
However, the market does not seem to be reacting to those statements. That means the IMF and EU will hold their noses
and pony up, most likely with still
more ridiculously optimistic
targets about what Greece can achieve
in the next two years.
Summation of Troika
Report Badness
·
Greek reforms at a standstill
·
Recession deeper than expected
at -4.5%
·
Clear political risks
·
Reinvigoration is necessary to prevent the fiscal deficit getting entrenched at unsustainable levels
·
Financing strategy needs to be revised
·
Tax
collection continues to underperform compared to plans, even after the downward revision agreed in previous reviews
·
Gap
between fiscal projections and the deficit ceiling has widened substantially
·
If
no action is taken, the government deficit in 2011 would remain above 10 percent of GDP
There
is additional bad news elsewhere.
·
Greek industrial production fell 11
percent year-on-year
·
Greek unemployment is 16.2 per cent,
the highest in the euro-zone after
Spain
·
The
IMF and EU want more austerity
measures and higher taxes
Greek Finance Minister
George Papaconstantinou bought
Greece a week's time but now looks more than a bit foolish. Der Spiegel has been vindicated.
Greece flunked.
Mish
GlobalEconomicAnalysis.blogspot.com
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