Greece: One step forward, two steps back
NEW YORK (CNNMoney) — The Greek government needs to do more to prove that it is worthy of more bailout money, top eurozone finance officials said late Thursday.
The latest package of austerity reforms that Greek political leaders spent the last several days haggling over is not enough to immediately secure a€130 billion bailout, according to the Eurogroup of finance ministers from the 17 nations that use the euro.
The ministers are aware of the “significant efforts already made by Greek citizens,” said Eurogroup president Jean-Claude Juncker. But “further efforts” are needed to ensure that the nation’s debts are brought under control and its economy is put back on track, he added.
“Despite the important progress achieved over recent days, we did not yet have all necessary elements on the table to take decisions today,” Juncker said during a press conference following a hastily called meeting in Brussels.
It was the latest turn in a seemingly never ending back and forth between Greece and its bailout providers at the European Union, International Monetary Fund and the European Central Bank, the so-called troika.
Greek Prime Minister Lucas Papademos and the leaders of his interim government reached an agreement this week on a reform program to reduce government spending by cutting jobs, salaries and pensions for public workers, among other politically unpopular measures.
The austerity is a condition for Greece to receive a second bailout, which the nation needs to avoid a potential default on a €14.5 billion bond redemption in March.
On Friday, violence erupted as crowds gathered in protest of the measures, following a call by trade unions for a two-day strike. Hooded youths tossed stones and police fired stun grenades in front of the Greek Parliament.
The government needs to meet three conditions before the Eurogroup can sign off on more emergency loans, according to Juncker.
First, the Greek Parliament must approve the reform program Sunday, when lawmakers are set to vote on the issue. Then, the Greek government must identify an additional €325 million worth of “structural expenditure reductions” to ensure that its fiscal targets are achieved. And finally, the nation’s political leaders need to provide “strong assurances” that the reforms will be implemented even after elections are held later this year.
“In short, no disbursement without implementation,” said Juncker.
The thinly-veiled ultimatum must be met by next Wednesday, when the Eurogroup will hold another meeting to review Greece’s progress, said Juncker, adding that the Greek government has provided assurances that the demands will be fulfilled “in the coming days.”
Juncker’s comments reflect a growing sense of frustration among top EU officials with the lack of progress Greece has made toward paying off its debts and restructuring its economy.
The nation, which is at the center of Europe’s debt crisis, has struggled to follow through on the conditions of its 2010 bailout as the Greek economy has sunk deeper into recession.
“We cannot live with a system where promises are made and repeated and repeated and where the implementation measures are, from time-to-time, too weak,” said Juncker. “So we are insisting on a real, true implementation.”
Assuming the conditions are met, Juncker said the ministers should be able to make the necessary “political decisions” to release loan guarantees from the eurozone bailout fund, the European Financial Stability Facility.
But that may not be the end of Greece’s bailout saga. The German Parliament must also approve the disbursement of additional EFSF funds.
In addition, Greece needs to seal a deal with private sector creditors towrite down €100 billion worth of Greek government bonds and execute a debt exchange that would leave investors with a loss of up to 70%.
Olli Rehn, the top economic and monetary official at the European Commission, said the private sector deal is “practically finalized” and is expected to be made official next week along with the overall reform package.
A spokesman for the Institute of International Finance, which represents the commercial banks and investors that hold Greek bonds, welcomed the progress that Greece has made and said the organization looks forward to finalizing the agreement next week.
The writedown will help reduce Greece’s debt burden to 120% of gross domestic product by 2020, from about 160% currently, said Rehn. But he acknowledged that the timing is key, since any delay could put Greece at risk of a default in March.
“Yes, we have a shortage of time, but we are still within the schedule,” said Rehn.
He also suggested that the EU will begin playing a bigger role in overseeing the Greek government’s implementation of the proposed reforms.
The Greek government needs to take “genuine ownership” of the second bailout program, Rehn said. To that end, the EU will “further strengthen our capacity on the ground in Athens both in terms of monitoring and surveillance.”
The EU will provide “technical assistance” on matters including fighting tax evasion and the privatization of state assets, he said. In addition, EU officials are considering a plan to put bailout funds for Greece in an escrow account as part of a plan to ensure compliance, he added.
“The future of Greece is first and foremost in the hands of those who have the political responsibility,” said Rehn. “The decisions they will take in next days and weeks will determine the prospects of the country and its people in order to put an end to an era of unsustainable public finances and a chronic lack of competitiveness.”