Tough Talks in Athens Greece Expects a Second Debt Haircut

Greece is expecting a second debt haircut from its European creditors following the German election, the country's economy minister said on Tuesday. First, though, Athens must prove that it has done enough to receive the next tranche of badly needed bailout money.


With German elections just three months away, Berlin is eager to avoid any talk about yet another debt haircut for ailing Greece. Indeed, German Finance Minister Wolfgang Schäuble ruled out such a possibility just last week. It is clear, he said, "that we aren't going to undertake such a debt reduction."

This week, though, with Athens' international creditors once again in town to check up on the country's reform progress prior to the release of the next €8.1 billion tranche of aid money, Greek Economy Minister Kostis Hatzidakis say he believes that such a debt haircut is coming.

"If we are reliable and make progress, I am certain that our partners will demonstrate their solidarity with Greece," Hatzidakis told German daily Die Welt on Tuesday when asked if he thought that the EU would consider forgiving some of the country's debt.

The comments are a continuation of the bitter dispute last fall between European Union leaders and the International Monetary Fund about the long-term sustainability of Greek debt. The IMF was demanding measures to ensure that the country's debt load had shrunk to 120 percent of GDP by 2020 -- a level that would almost certainly require that Athens' creditors forgave some of that debt. Germany led the opposition, partly out of concern for how it would play among voters ahead of this year's general election.

For the moment, of course, the question of a debt haircut remains academic, particularly this week. Representatives from Greece's troika of lenders -- the EU, the IMF and the European Central Bank -- are back in Athens to determine whether Greece has made satisfactory reform process.

Unsatisfactory Reform

And according to a Reuters report on Tuesday morning, they are not happy with what they have found. Following an unsatisfactory Monday report on the country's progress toward privatization goals and public sector reform, troika officials have given the country three days to put together a new report, to be presented on Friday, Reuters reported, citing four unnamed euro-zone officials. European Finance Ministers are scheduled to meet next Monday to discuss the release of the next tranche of liquidity.

"All agreed that Greece has to deliver before the Euro Group (meeting) on Monday. That's why they must present again on Friday," a source told Reuters.

The talks resumed this week following a two-week hiatus resulting from Prime Minister Antonis Samaras' sudden shutdown of Greek public broadcaster ERT and the subsequent near-collapse of his government. Now, after one of his coalition partners left his government, Samaras is left with but a three vote majority in Greek parliament, giving him little wiggle room when it comes to passing new reforms.

But with the troika unhappy with Greek progress, he may be faced with having to make additional budget cuts. Of particular concern is the slow pace of Athens' privatization program, with Greece planning to ask the troika to lower the 2013 target of €2.6 billion, primarily because finding a buyer for the country's natural gas company DEPA has proven problematic. Furthermore, Athens missed a June deadline to dismiss 12,500 public sector workers and state-run health insurance company EOPYY is currently suffering a €1 billion shortfall. Plugging that gap and others may be difficult without further cuts.

Greeks, though, are understandably tired of increasingly tight austerity measures, particularly after years of deep recession. The country's jobless rate currently stands at 27 percent, a significant reason why European Union unemployment now stands at a record high of 12.1 percent, according to statistics released on Monday.

The €8.1 billion at stake is just the latest portion of the second EU bailout package. It is set to expire at the end of 2014.

cgh -- with wire reports

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pmoseley 07/02/2013
1. True to form
I've said this before, and I will repeat it. Greece will not live up to its promises of economic reform and debt reduction any time soon. It will need constant drip feeding to stay above water and the EU will be footing the bill for a very long time to come. Whatever flexibility is allowed for Greece it will, time and time again, renege on its promises, partly through poor economic performance, partly through incompetence, but mainly because it knows that countries like Germany will do their utmost to prevent the withdrawal of one of the Eurozone members. And the worst aspect of all this is that Germany knows it too. Germany will continue the scharade of refusing further flexibility but will be the first to blink. And Greece will not be the only Eurozone to use this tactic - there's a whole string of them waiting in the wings.
Manish Gupte, PhD 07/03/2013
2. Who created Austerity logic?
Wealth is created by working. Higher taxes reduce spending so how will anyone get jobs and so how will the tax revenue increase and then how will they pay back debt? Excess outsourcing and imports caused the current crisis! I saw a post on Twitter, a young entreprenuer was trapped in his public sector job. They did not let him start his own business. That should stop. Then, higher consumption will be supplied by Greeks. That will increase tax revenue!
stevej8 07/03/2013
3. optional
When Greece grows again, the debt load will shrink. But it has to be real growth and not just more debt-driven artificial bubble growth. What should therefore be looked at, assuming Greece is sticking to its agreed obligations, is real and productive job creation in Greece, via targeted and ringfenced investment in productive enterprises. This of course requires a change in aspects of culture and management, but given that with the recruited personnel, it would benefit the Greek economy greatly, with salutary effects for Europe also. Of course the Greeks have to achieve a political stability to enable this, but success for Greece is a prize worth the effort.The time to start planning this is now.
Manish Gupte, PhD 07/03/2013
4. How to make money from Greece crisis?
Greece has a large population of educated people. Debt is an investment not favor! If Greece can reduce taxes and allow entreprenuers to work freely then they can take advantage of lower taxes and create employment. So, unemployment goes down and wealth is created. So, they can pay back debt with interest. Unemployment is high, so some factories could move from Asian countries to Greece. And, as EU countries have investment in those factories, EU can "import" those products. Price will be higher that imports for some countries, however, it will produce a higher return as it is investment also.
aniani 07/10/2013
5. optional
Historically speaking Greece will continue in the same whining mode for decades to come. They aren't capable of changing as a Cultural or a people and for too long have lived in the comforts of entitlements.
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