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The Troika gave an ultimatum with strict conditions to the Greek government, so that when they return to Greece in mid-January they can sign the contract for the new package of financial assistance for the country amounting to 130 billion euros.

A possible breach of the conditions will put Greece in a difficult situation because the country will be very close to a possible bankruptcy.

As it becomes clear, since the next Troika visit is scheduled for 16 January, the government will have to maintain its consistency within a very tight time frame, it will have to make difficult decisions and to provide convincing answers to the creditors of the country.

Meanwhile, a senior creditor representative sent a clear warning to Athens: "Do not consider the new aid for granted. The Troika wants to speed up reforms."

The bet is enormous, given that a positive outcome from the negotiations with the Troika will open the way for giving the first tranche of 90 billion euros in February, as well as progress on the issue of “cutting” the Greek debt by 50 percent.

Otherwise, without the new loans, but also without the agreement for bond exchange (PSI Plus), the government will not be able to repay bonds worth 14.5 billion euros, which will mature in March.

As it shows, talks in January will be painful, especially if we consider the ones which took place in autumn in connection with the granting of tranches of 8 billion euros.

Race against time

In particular, within less than 30 days, and especially during the holidays, the government will have to:

• have determined accurately the additional package of measures for 2012 amounting to nearly 3 billion euros, in order to cover the failures of this year's budget, and guidelines for the adjustment of 7 billion euros in 2013-2014.
• have provided a political agreement, because the Troika wants the parties supporting the Government of Papademos to agree that the measures specified in the negotiations will be undertaken by the new government, which will be formed after the elections.
• achieve an agreement with the private creditors on the PSI Plus programme, whose realization is a necessary condition for launching a new lending programme.

As a senior Troika official said, negotiations with the banks for bonds exchange are constructive and useful, but it is still too early to provide results.

Remarks

They showed Greece a card for the (non) liberalization of the so-called closed professions

The Troika will no longer accept even the slightest delay in the reforms. During their brief visit to Athens, the heads of the Troika found that structural changes which were to have been implemented from the beginning of 2011, remained on paper.

A typical example is the liberalization of the so-called closed professions. Ever since the beginning of the Memorandum implementation the Troika set as a primary reform objective the liberalization of professionals and markets. Still there is no full liberalization, whereas there are provisions which should have been introduced by July of this year and should have already been in force. The Troika wants immediate changes in the mode of remuneration for lawyers and notaries, but also actual liberalization of the engineering professions.

Also the Troika officials want the government to proceed with "real" privatization (not renewing contracts) with the sale of large companies listed on the stock exchange and government property. If this does not happen, they believe that the new target for revenue of 9 billion euros from privatization in 2012 will not be achieved. In addition, the Troika believe not enough has been done in the field of labour and insurance. Great delay is observed also in the implementation of the national tax plan because the Ministry of Finance has announced that the new tax bill will become law by the end of 2011 but is now postponed to March 2012.
What the creditors want

Pressure on 6 fronts

The package of measures for the period 2012-2014 will reach 10 billion euros, out of which 3 billion euros are the additional measures for the new year, because this year's deficit, according to today's data, reaches or even exceeds 10 percent of GDP. In January, when the Troika will return, the data on the 12-month basis budget execution will be known, but also the expected revenue from the first two months of the year will be shown, which will be registered in the last two months of 2011.

This will clarify what adjustments will be needed in the 2012 budget, so that the deficit next year will be limited to 5.4 percent of GDP. As stated by the Head of the International Monetary Fund Mission for Greece, Poul Thomsen, but also after contacts with government officials, it appears that creditors of Greece want:

• Aggressive closure of state institutions.
• Laying off civil servants, as the measure of labour reserves did not bring the expected result.
• Reduction of salaries in state structure enterprises.
• Reduction of the cost of salaries in the private sector to improve the competitiveness of the economy.
• Reduction of drug costs and all costs of medical care.
• “Trimming” of social benefits and allowances.

It should be emphasized that both Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos, are committed to their being no widespread reduction of pensions and salaries and no new taxes next year.