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The support to Greece may be temporarily suspended

03 July 2013 / 21:07:01  GRReporter
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European Commission President Jose Emmanuel Barroso has announced that Brussels is considering changing the rules on the level of the deficit of euro zone countries in order for the further deepening of the crisis to stop.

He has explained that the Commission will consider the possibility of allowing temporary deviations from the path defined for the level of structural deficits in 2013 and 2014 to allow the member states to invest in programmes with proven contribution to the sustainability of public finances such as infrastructure projects. Barroso has also stressed that they will have to be co-financed by the European Union and have a real, direct and long-term contribution.

The benefits provided by this proposal for the member states do not apply to Greece. The majority of the macroeconomic indicators of the country have not met, since 2009, the standards imposed by the European Union which, along with the increased costs of external borrowing, has led to the establishment of the financial support programme.

After three years under the control of the lenders from the International Monetary Fund, the European Central Bank and the European Commission, over 150 billion euro obtained as funding and debt restructuring, Greece still cannot stand on its own two feet.

The supervisors are on their second visit to Athens within a month. Their goal is to finish their latest report on the state of the economy but the audit cannot be completed because Greece is unable to cope with the restructuring of the public sector. According to the obligations stipulated in the Memorandum of financial support, by the middle of the year, the government should have completed the evaluation and classification of public workers to remove 12.5 thousand officials. They should have been included in the mobility programme under which they could be appointed to a new public position within one year or will have to be permanently laid off from the public sector.

The fulfilment of the obligations under the contract will determine whether the Eurogroup will approve on Monday the payment of the next support tranche of 8.1 billion euro or not. It may not be approved if the supervisors are not certain that Athens will strictly apply the requirements under the bilateral agreement. Although the majority of the reforms have already been applied, the two greatest problems remain, namely the reduction of the public administration and the improvement in the collection of tax revenues.

"I do not think that the tranche will be paid if this inspection is not successful," a senior European politician comments for Reuters, which is posing another problem to the government. It may keep its temper under control at first sight but the problems do not disappear.

"The world will not end if we do not receive the tranche," sources from the Ministry of Finance comment on the possibility of suspending the support programme while the new Minister of Public Administration Kyriakos Mitsotakis activates the mobility programme.

Although Greece will not repay large external debts in the coming months, the country cannot break through the restraints of the Memorandum of financial support. It became clear in the middle of June that the collected tax revenues were one billion euro less and that the national health system has significantly exceeded its budget despite the cuts made.

The only alternative, if the country does not receive the next support tranche in time, is a new issue of short-term government securities to temporarily fill the holes in the budget while Greece obtains another cash injection. However, their interest rates are higher and they cost the state dearly.

Tags: EconomyMarketsGreek crisisFinancial supportTrancheAthens
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