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Talks with the lenders are stalling

04 October 2012 / 21:10:17  GRReporter
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The talks between the Greek government and the representatives of international lenders from the International Monetary Fund, the European Central Bank and the European Union are still stalling. The two sides disagree on measures worth over 2.5 billion euro, which are to be included in the fiscal adjustment programme. The government refuses to give details about the main problem areas hampering the completion of the plan of cuts.

Government sources have indicated that the supervisors anticipate recession to 5% in 2013 and the Ministry of Finance insists that it will not exceed 3.8% next year. Furthermore, last week's controversial measures that stop the payment of the next tranche of aid were set at two billion euro. Now, the gap between the lenders and Athens is growing even more.

While the negotiators in Athens cannot reach an agreement, Market News International released information from an anonymous source that has also stood in the way. It states that Germany, the Netherlands and Finland want to delay the decision for the payment of the 31.5 billion euro aid until the meeting of Eurogroup finance ministers on 12 November. Initially, it was believed that the decision would be taken on 8 October, but it seems that the talks will not be completed by then. The next possible date for a decision on the subject was supposed to be 18 October, when the summit of political leaders from the European Union will take place. If the Greek issue is omitted on this date too, the rescue tranche will not reach Greece by the end of November. The proposal of the three northern European countries has put Greece in a very dangerous situation, but official sources have not yet confirmed the announcement by Market News International.

At the same time, the Greek Minister of Finance Yiannis Stournaras gives a very different picture of the course of talks. He told the German edition Bild that the country would receive the next tranche by the end of the month. "We expect the supervisory Troika’s report in the middle of October. And I'm very optimistic that Greece will get fresh funds from the bailout package by the end of October," the Minister said quoted by Naftemporiki.

Athens cannot afford to be slow too long and the bailout of 31.5 billion euro should be paid to Greece by the middle of November this year, when the package of short-term government bonds issued by the Debt Management Agency in August will be due.

During the hot month, the country had to pay the European Central Bank the full value of bonds worth 3.4 billion euro. The agency borrowed funds from Greek banks against the issuance of quarterly government bonds to cover the required amount. Now, the state of the banking system is even worse than it was in the summer. Financial institutions would not be able to bear the burden of another 3.4 billion euro before the recapitalization that can be implemented only after Greece receives the rescue tranche. According to the Greek media, the total value of government bonds maturing in the middle of November has reached 6.6 billion euro.

Stournaras insists that Greece and its lenders will have reached an agreement by Monday, 8 October, when the summit of euro zone finance ministers will take place. However, the situation in Athens remains unclear.

The supervisors were supposed to visit Stournaras’ office at 4:30 pm on Thursday, but they had gone there an hour and a half earlier instead. The head of the mission of the International Monetary Fund Paul Thomsen left the meeting in under 40 minutes, refusing to comment on the course of negotiations. Then, the representative of the European Commission Matthias Morse followed him silently. In contrast to the practice so far, the representatives of the Ministry refused to give the main outlines of the meeting, as they did before.

The representative of the European Central Bank Klaus Masuch stayed in the office of the Minister of Finance for about an hour and according to unofficial information, they discussed the issues of recapitalization of the banking sector and the possible haircut of Greek government bonds held by central banks in Europe (Official Sector Involvement-OSI).

Bargaining in Athens continues and it seems that the lenders will demand further cuts of pensions and salaries in 2013. So far, the plan provides for fiscal adjustment in the coming year worth 7.5 billion euro. This will come from the reduction of the salaries of public workers, policemen and from general cuts of pensions.

Another around two billion euro should come from structural reforms in public administration, local self-government organizations, health and military defence. Lenders believe that the measures proposed in these areas are not feasible. They require the government to formally engage that if the plan of structural reform does not work, there will be a new mechanical cut in pensions and public sector wages.

An easier way to solve the problem of missing funds is by evaluating the quality of the work of public employees under the staff evaluation programme ASEP. It will be possible then to distinguish capable public workers and "clean" the public administration of the excess burden. However, this requires political will, which none of the three parties supporting the coalition government in Greece today has demonstrated.

Tags: EconomyMarketsTroikaNegotiationsFiscal adjustmentGreeceCrisis
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