Bloomberg: Its Bailout-Review Time in Greece and Markets Are Wary - Again

Wednesday, September 20th, 2017
Last Update: 10:07
As the country enters the final year of its bailout, questions remain on whether it will be able to stand on its own feet when the rescue program ends. In the immediate term, with creditor representatives descending upon Athens last week for the third review, other concerns loom large, Bloomberg reports: Will this review of the bailout program be different from the previous two? What role will the International Monetary Fund play? Will Greece complete the 95 measures in the review in time?“The government appears willing to proceed with the third review without the delays of the past,” said Nikos Vettas, General Director of the Foundation of Economic and Industrial Research in Athens, who says that the Greek economy “is on a mild recovery path, assisted by a good year in tourism and other such increases in external demand.”

Greece faces two possible outcomes. Officials from both the government and creditors say the aim is to finish the third bailout review by the end of the year, giving the country time to raise more funds in the market and paving the way for its successful program exit. Concluding the review by the end of the year, or even in the early months of next year, would help Greece gain much-needed investor confidence.

Prolonged negotiations, on the other hand, could weigh on investor sentiment and hamper the country’s effort to exit its bailout next summer and finance itself.

No Debt Relief

“Investments are at a very low level and, as a result, Greece is growing much slower than it should and, in fact, slower than many of its eurozone partners,” Vettas said. Greek investment was stagnant in 2016 and fell during the first two quarters of this year.

If Greece’s bailout runs out before the country completes all the reforms it has agreed to, it could put at risk any plans for debt relief from the euro area, something the government has sought for years. Greece’s partners agreed to ease the country’s debt at the end of its bailout, provided agreed reforms are successfully concluded.

Key sticking points in the review include Greece’s budget for 2018, and whether the country is taking sufficient measures to hit bailout-prescribed targets. Greece is expected to have a primary surplus, which excludes interest payments, of 3.5 percent of gross domestic product next year, a target that seems more difficult as tax receipts have failed to yield expected revenue, Greek and EU officials say.

Tough Choices

Meanwhile, politically contentious issues such as privatizations, the reform of public administration as well as an overhaul of the labor market may be raised in the upcoming talks. Greek banks’ handling of nonperforming loans is also expected to come under fire as is a restructuring of social benefits. Tsipras’s administration has yet to find resources in the budget to avoid cutting some popular benefits.

The IMF’s demand for a new asset-quality review for Greek banks may be another bone of contention, this time between the Fund and the European Central Bank. The Greek government and Frankfurt say that such a review will harm the nation’s lenders because they need to focus on addressing the NPL issue.

A solution, they say, may be to wait for the results of the banks’ regular stress tests, which are expected before the end of the bailout program, without a new asset-quality review.

Some external factors may also have major consequences for the discussions, most importantly the German election.

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