Additional measures amounting to 7 billion Euros by 2015, even with the full success of the programme for bond exchange (PSI), and the formal extension of the Memorandum and supervision of the Troika until 2015, are provided by the revision of the medium-term fiscal plan.
Based on the new program, added as an annex to the budget for 2012, the deadline for implementation of the memorandum has been changed and is now officially extended to 2015. This is because with the mid-term plan from July the deficit was expected to fall below 3 percent of GDP in 2014.
With this reduction Greece would have had the same obligation to further reduce the deficit (because of the EU) but would not be under the Supervision of the European Union and International Monetary Fund. The revised mid-term fiscal plan, however, in practice extended the length of time Greece would remain under fiscal surveillance, which is now at least until the end of 2015, year in which the budget deficit is not expected to fall below 4.4 percent of GDP.
Compared with the mid-term fiscal plan from July, according to which the deficit should be reduced to 2.6 percent of GDP in 2014, and subsequently to 1.2 percent of GDP in 2015, the new medium-term fiscal plan contains more gloomy forecasts. It provides that the deficit will decline at a slower pace, reaching 11.4 billion Euros in 2014 (5.1 percent of GDP) and at the end of 2015 it will decline to 9.6 billion Euros or 4.4 percent of GDP.
This development shows that if Greece wants to achieve its objectives it must adopt additional measures amounting to 7.023 billion Euros, which will be included in the revised Memorandum and their analysis is expected to begin in mid-December, when the Troika will visit Greece in connection with the next installment.
The positive part
The only positive part of the new medium term plan, which is expected to be announced with all its parameters in March, is the situation with the payment of interest on the debt, which, however, depends directly on the degree of participation of private investors in the remission of 50 percent of the Greek debt, which they have in their wallets.
According to data submitted by the Finance Ministry in Parliament on the issue of benefits in terms of interest, there are several options that are likely to change before the completion of the procedure for the exchange of Greek debt.
The revised medium term plan provides that the participation of private investors will reach 190 percent or close to that percentage and the new bonds, which will replace the old ones, corresponding to 50 percent of Greek debt, will have a rate equal to or less than that, which Greece achieved in their issue on the primary market.
In this situation, the programme provides a gain from the reduction of interest obligations amounted to 27.872 billion Euros for the period 2011-2015. The total amount of interest paid after the exchange of bonds will reach 70.430 billion Euros, while without the participation of private investors Greece would need about 98 billion Euros to cover the interest of the debt.
Net profit
Net income from interest in 2012 is expected to reach 4.1 billion Euros in 2012, an amount which will increase to 5.9 billion Euros in 2013, and even more in 2014 and 2015, through the rapid reduction of debt by creating primary surpluses.
Another difference between the mid-term plan from July and the new medium term plan, submitted to the National Assembly, is the development of a primary effect which appears to be affected by the recession in the economy, which will continue in 2012 with a 2.8 percent pace.
The primary surplus is expected to reach 1.1 percent of GDP (around 2.4 billion Euros) in 2012, in 2013 it will decrease to 0.5 percent of GDP (1.1 billion Euros), in order for it to increase to 1.7 percent and 2.1 percent of GDP (3.7 and 4.8 billion Euros respectively) in 2014 and 2015. By the end of the five years the accumulated primary surplus is likely to reduce debt by 12,5 billion Euros, without counting the profit from interest.
The differences between the two medium term plans, from July and the current one, are in the objectives for revenue and expenditure, namely:
The objectives for government revenue during the two years 2011-2012 were revised downwards by about 5 billion Euros. The deviation for 2011 based on the first medium term plan, reaches 3.3 billion Euros, while for next year the general purpose of revenue shrinks by nearly 1.7 billion Euros.
Accordingly, total costs, mainly due to higher profit from the interest on the debt, are reduced for both years 2011 and 2012 with a total of 7.64 billion Euros, of which 1.43 billion Euros relate to 2011, mainly because of austerity measures and cuts in public spending, which began gradually in the autumn, while the remaining 6.213 billion Euros relate to 2012.
The white "hole" in the budget
With the exception of the profit from interest, the program for bonds exchange (PSI) will affect the fund reserves negatively, which supported with their reserves in bonds so called white hole in the budget.
The mandatory participation in cutting of the Greek debt will lead to excess of insurance funds of 233 million Euros, which is expected to reach the end of the year, to become a deficit of 169 million Euros in 2012, the year of application of PSI, and then to reach 975 million Euros, 619 million and 620 million Euros for 2013, 2014 and 2015 respectively.
Meanwhile it is expected for public hospitals to balance their budgets for the period 2012 -2015 and in 2011 the fiscal year is expected to finish with a deficit of 455 million Euros.
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