Reinforcing growing sentiment that disputes the Greek government’s assertion it’s on the road to recovery, Eurozone chief Jeroen Dijsselbloem told the European Parliament that the country needs a third bailout next year.
Greece is surviving on $325 billion in two bailouts from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) but is burning through the money by paying huge amounts of interest and repaying investors while making little progress in reducing its still-staggering $390 billion debt.
Dijsselbloem said that it’s “very likely” Greeces need more financial aid beyond its current rescue loan programs, which end next year.
The IMF estimated in July that Greece faces a financing shortfall of about 11 billion euros ($14.5 billion) through 2015. Dijsselbloem, however, declined to estimate Greece’s additional financing need, saying “speculation at this stage isn’t helpful.” He said that, “It’s much too early to talk about the character of a new program, the size or the conditions of a new program.”
“It’s clear that despite recent progress, Greece’s trouble will not have been completely resolved by 2014,” Dijsselbloem told European lawmakers. That’s likely not to sit well with them because the taxpayers in the other 16 Eurozone countries have to keep coming up with cash for Greece and if there is a default they will be left paying the tab for generations of wild overspending by successions of Greek governments.
He said, “It’s realistic to assume that additional support will be needed beyond the program,” provided Greece complies with conditions set out by the Eurozone finance ministers, collectively known as the Eurogroup. He says a decision won’t be made before April of next year.
The main conditions are for Greece to achieve an annual primary budget surplus — that is, before the cost of servicing its debt — plus the full implementation of reforms Athens has agreed to in return for its bailout loans, he said. “Further progress is needed, specifically in the field of public sector reform and tax administration reform,” he said.
Dijsselbloem, who is also the Dutch finance minister, said the 17-nation Eurozone has made clear it stands ready to assist Greece further, possibly by again reducing the interest rates on the bailout loans, until Athens is able to refinance itself again on financial markets, which Greek Finance Minister Yannis Stournaras said could happen by the end of next year if everything goes well, although it it isn’t so far.
Many analysts maintain Greece’s debt load will still be unsustainably high at the end of the program, possibly requiring Eurozone lenders to forgive some of their loans to Greece, a so-called “haircut.”
Greece had to seek international rescue loans in May 2010, when the dire state of the country’s public finances left it unable to borrow on international bond markets. To qualify for the loans, Greece pushed through repeated rounds of austerity measures, slashing state spending, cutting state sector salaries and pensions and increasing taxes across the board.
The government has just reached a primary budget surplus, but unemployment has reached 27 percent as the country struggles through its sixth year of recession.