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Creditors to audit Greek progress on debt reduction

2012-07-24 05:47:38

Representatives from the troika of international lenders arrive in Greece on

Tuesday to assess its progress towards reducing its huge debts.

They must decide whether Greece is eligible to receive 31.5bn euros - the last

tranche of a 130bn euro ($158bn, 102bn) aid package agreed in March.

Athens is behind in its plans to cut spending and debt because its economy is

shrinking faster than forecast.

The Greek prime minister is expected to ask for more time to repay its loans.

The International Monetary Fund (IMF), European Central Bank (ECB) and European

Commission (EC) make up the troika.

The IMF said it was "supporting Greece in overcoming its economic difficulties"

and would work with the country to get it "back on track".

However, reports over the weekend suggested that the IMF would refuse calls for

further aid.

Extra 50bn euros

Greece has promised to reduce its budget deficit to below 3% of annual national

income as measured in Gross Domestic Product (GDP) by the end of 2014. At the

end of last year, Greece's overspend was equivalent to 9% of GDP in 2011.

Crisis jargon buster

Troika

The term used to refer to the European Union, the European Central Bank and the

International Monetary Fund - the three organisations charged with monitoring

Greece's progress in carrying out austerity measures as a condition of bailout

loans provided to it by the IMF and by other European governments. The bailout

loans are being released in a number of tranches of cash, each of which must be

approved by the troika's inspectors.

Successive Greek governments have managed to trim 17bn euros from government

spending. That has brought the country's total debt down from more than 160% of

GDP to 132% according to official figures released on Monday.

Under the terms of its international loan agreement with the troika, Greece has

vowed to reduce its total debt to 120% of GDP by 2020.

But, Prime Minister Antonis Samaras would have had to have raised another 12bn

euros through higher taxes and the sale of public assets such as the country's

loss-making railways to have met this bailout target.

Still worse, Greece's economy is shrinking faster than most had forecast. The

Bank of Greece expects GDP to shrink 5% this year in its deepest recession

since the 1930s.

As a result, economists calculate that Greece may need a third rescue package

worth up to 50bn euros.

August debt payment

The re-run of general elections and political instability as parties scrambled

to form a governing coalition has delayed work by the troika and the government

to agree a credible plan to restore the nation's finances.

A European Commission spokesman said the troika would not be in a position to

report its findings and release the final 31.5bn euro installment of bailout

money until September.

"The Commission is confident that the decision on the next disbursement will be

taken in the near future, although it is unlikely to happen before September,"

he said.

That leaves Greece in a difficult situation. A 3.8bn euro debt repayment to the

ECB falls due on 20 August. Without the troika money, the ECB may be forced to

step in to provide temporary aid.

But further debt repayments are due in September so failure to secure the

bailout money could push Greece to the brink of insolvency.

If Greece were to default on its outstanding loans that, in turn, could force

it to exit the eurozone and return to the drachma.