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.