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It is now impossible for Greece to meet its obligations under the memorandum, as 77 measures should be implemented by the end of June.

Furthermore, the planned fiscal adjustment for 2012 is considered extremely difficult because of the political turmoil in the state apparatus, the deeper than expected recession and the drop in tax revenues.

In compliance with the supplementary budget of March, the deficit must be reduced to 13.73 billion euro or 6.7% of GDP, but in the case that the recession is limited to 4.7%.

Recession reached 6.2% only in the first quarter and according to recent estimates, it will be 5% on an annual basis.  

The supervisory Troika

Therefore, once a new government is formed and the Troika’s representatives arrive in Greece, the talks on extending the fiscal adjustment will start with a revision of the objectives set for the current year.

Let us recall the major obligations to be implemented next month:

- Drawing a new medium-term framework for fiscal adjustment, which on the basis of the memorandum will include cost cuts amounting to 11.6 billion euro for 2013-2014.

- Voting on the new tax bill, the major part of which stipulates the cancellation of tax exemptions.

- Adopting a legal regulation for an average of 12% reductions of staff remuneration in payroll tables.

In the next 30 days, the Ministry of Finance team will be walking a tightrope trying to find money to meet the basic needs of the state and, primarily, to pay salaries and pensions.

The Ministry of Finance will have to cope with the unprecedented drop in revenues, the issues surrounding the formation of the government and with the euro area reluctance to allocate the remaining 1 billion euro from the tranche approved for payment in May.

According to sources, this amount will not be paid to Greece before the last ten days of May, when the available resources of the state will be drying up.

The same sources claim that as no immediate improvement is expected in tax revenues, government spending (subsidies, tax refund, payment of outstanding duties) will have to largely shrink so that July salaries and pensions are paid at the end of June.

Even the freezing of expenditure will, however, solve the problem temporarily because the state will not be able to meet its obligations in the coming months without the bailout funds.

Smooth lending to Greece depends directly on the outcome of the elections on 17 June and the forming of a government. Even if the political crisis were overcome, the newly formed government would have to immediately launch heavy bargaining with the supervisory Troika, because all measures planned for June are lagging behind.
 
At this stage, and while keeping the country in the eurozone is at stake, the biggest problem is whether the state will be able to prevent any internal suspension of payments.

The situation is extremely difficult due to the collapse in tax revenues as the mechanism for collecting taxes is not working at full power and the political uncertainty is driving the taxpayers away. The drop in the revenue has exceeded 15% since the beginning of the month whereas the Ministry of Finance is informally warning that if the situation does not improve, there would be monthly losses of 50% - an unprecedented rate in the history of the budget.

THREATS FOR THE 2012 BUDGET

The four black holes in tax revenues

Four black holes are the reason for the collapse in tax revenues in 2012 and threaten to blow up the financial programme.

The sharp drop in revenue is due to the following factors:

- Serious delay in sending notification letters for property taxes, which is depriving the treasury of about 1 billion euro. The "Information Systems" Directorate General has long been prepared to send 270 thousand letters of payment of the special property tax for 2009, amounting to 100 million euro, but expects orders to begin sending the letters to property owners. For election reasons, however, the letters are still waiting in the Directorate’s drawers. While the collection of taxes for 2009 is being delayed, the payment of property taxes for 2010 and 2011, amounting to 900 million euro, is also lagging behind.

- Extension of deadlines for filing tax returns from companies and individuals. The deadline for big companies is 31 May and for individuals - 15 June. The Ministry of Finance is very likely to be forced to extend this period, due both to the elections and the problems that may occur in the Taxisnet system of the Ministry of Finance.

- Heavy losses reported by thousands of companies in 2011 due to the deep recession that hit the market and the real economy. Six out of ten companies reported low financial results meaning that the state will collect less revenue from the companies this year.

- The dramatic situation in the collection of indirect taxes, the most serious problem being VAT revenues that are "in the red" due to a 13.5% drop.