Galery

1

Rumours that the expert Troika insists on deficit reduction are becoming more persistent hours before the publication of the government reports on the implementation of the budget for the first eight months of 2010. The representatives of the International Monetary Fund, the European Central Bank and the European Commission are in Athens more than a week to inspect how the Greek government has implemented its obligations to put the local economy into operation in line with the eurozone requirements. A major problem for most experts remains the gap in the revenue that the Greek government is trying to attach to the decrease in consumption. Whatever the reasons, however, the experts will apparently require realignment of the efforts of local government, so that the budget deficit at the end of 2011 to be 7 % of GDP instead of the initially agreed 7.6 % of GDP.
 
After salaries and pensions cuts, the reform in the local authorities (the Kalikratis law) and the taxes and excise duties increase, Greece is still at the beginning of the recovery process. This is indicated in the analysis of the operating revenues and expenses of the Bank of Greece in July, which showed that the reduction of the budget deficit was only 11.1%. In other words, after applying a series of financial restrictions this year and the increase in VAT from 21% to 23% in July the government has saved only € 185 million compared with same month of 2009. The funding of the public sector is still raising problems as social insurance funds, pension funds, hospitals and municipal budgets recorded the largest deficits. These items of the state budget still absorb a lot of resources and the expenditures of municipalities in the country (Piraeus, Zakinthos, etc) are especially undue as they have accumulated billions of euros in debts to banks and other financial institutions.
 
The Memorandum of financial assistance obliges Greece to reduce its budget deficit from almost 14 % of GDP in 2009 to 8.1 % of GDP at the end of 2010. And as the government's financial plan concerning the revenues and costs could hardly be implemented, the mission of the IMF, the ECB and the EC together with the Ministry of Finance are considering new ways to save money in 2011. One of the latest proposals is the average VAT to increase from 11% to 13%. Economists at the Ministry of Finance estimated that the next tax increase would bring about a billion a year, and continue to seek alternative ways of fundraising. Some of the other tasks in the coming year remain the completion of the process of market liberalization, the state railways privatization, the reform in public transport, etc.

In general, the reasons for concern are based on the slow pace of reform of the local economy, which today registers negative growth of almost 5 %. Financial experts commented that while Greece is trying to reform its internal economy, its external debt grows inexorably. Chris Price – the chief analyst for Greece at Fitch Ratings– explains that despite the recent changes the country is still experiencing the same difficulties it faced late last year before the Memorandum of financial assistance entered into force. At the same time, there is strong inside resistance in the country to the struggle to reform its domestic economy, which makes the task of the government still more difficult. Strikes, protests and riots are something usual in Athens and Thessaloniki, which the international media comment and which is further hurting the image of Greece abroad. The small victories of the socialist government are lost in the public outrage and the return to international credit markets seems to be drifting more and more away.

Supporting the efforts of the Greek government, the representatives of the IMF, the ECB and the EC mission declared during the tour of George Papakonstantinou Europe's readiness to continue to support Greece after the end of the contract in 2013. If the Mediterranean country is still not able to receive funding from international financial markets due to higher interest rates after the end of the program of financial assistance, it will need a helping hand. The contract stipulates so far that Greece should begin to pay each loan that it has taken according to the Memorandum after three years. The relevant amount should be paid in eight equal installments for two years. One of the considered options, according to Katemerini newspaper, is the eurozone countries and the IMF to extend the grace period from three to five or even seven years for each part of the loan. Another option that the Greek edition presents is the repayment of any loan to be extended from two to three years. Whatever the option, it all leads to rescheduling the payments to foreign creditors. Katemerini supported this noting that the initial credit needs of Greece in 2013 would be of around € 50 billion a year and could even reach over € 70 billion. Given that reducing the interest on the financial assistance loans is inconceivable as it is twice as lower as the interest of the international markets, rescheduling of external debt remains the most likely development of the Greek drama.