Galery

1

Due to the delay in payment of the 6th instalment, which was supposed to be granted in mid September but was postponed to early November, government services have "frozen" most payments to secure necessary funds for salaries and pensions.

A repetition of the show, which is being played these days by the state in relation to the payments, is very likely to happen again next year.

Owing to lack of liquidity the state has accumulated a whole "mountain" of overdue debts, which, as has become clear from recent data, exceed 6.5 billion euros.

Under the provisions of the Troika, these obligations should be reduced to zero in 2012, a requirement which brings new headaches for the economic team.

The Greek side is trying to negotiate with the Troika for these obligations to be repaid immediately after the release of the first tranche of the new rescue plan, amounting to 20 billion euros, according to the decisions taken at the summit on July 21^st.

The Ministry of Finance needs 2 billion euros next week to pay the securities maturing now, and another 8 billion will be needed for repayment of short-term bonds that expire in December. The Agency for government debt management is planning for Tuesday, October 18^th, to hold an auction of three-month bonds worth 1.25 billion euros. In practice, however, having the non-competitive bids totalling 750 million euros, the amount to be collected will reach 2 billion euros.

These funds will be used to refinance the maturities of the quarterly bonds issued last July amounting to 2 billion euro. Given the scarce financial resources of the state, the scenario would become a nightmare in the event that the emitted amount is not covered. Payment of the 6th instalment of 8 billion euros is still delayed, and the available funds, "sufficient until mid-November," according to the government cannot cover the obligations to repay the bonds, but only the current obligations for payments of the state.

Particularly stressing is the need to refinance short-term securitiesn both in November and in December, during which falls the maturity date of the short-term notes of 8 billion euros, in other words 4 billion euros a month.

The Ministry of Finance awaits the decisions that will be taken at the forthcoming summit to be held next weekend, at which it will be decided how to revise the decisions taken on the 21^st of July, and by how much Greek bonds should be trimmed, bearing in mind that everyone predicts that the percentage will be higher than the agreed 21%.

In addition, lending over the last two months of the year will be facilitated by the granting of the 6th instalment, which is expected to happen in early November, after the Greek Parliament has passed the controversial bill and the budget for 2012.

In any case, this year the state has borrowed the sum of 29.8 billion euros in quarterly and six-month bonds.

The total amount of bonds issued this year will be 40 billion euros, which represents an absolute record.

Meanwhile the Ministry of Finance aims to create a primary surplus in January 2012 so as to avoid failure in the following year. This is to ensure that it is able to cover all public expenditures and, in particular, that it is able to pay salaries and pensions.

It should be emphasized that regardless of the final rate of "haircut", which will be negotiated in the eurozone, it is considered certain that the general solution for Greece will have the following basic principle - "the partners will take over the debt servicing and the Greek government will have to handle the deficit."

In practice this means that the maturities of bonds and interest costs will be covered through loans from the eurozone and the International Monetary Fund, with, in addition, the involvement of the private sector (PSI). At the same time the Greek government is invited to create a primary surplus in 2012, so that costs in the primary budget (salaries, pensions, financing the institutions, operating costs - consumer spending) can be covered straight from the tax and other revenues.

It is no coincidence that after the pressure of the Troika, the budget parameters for 2012 have been changed and the objective of creating a primary surplus of 3.2 billion instead of 1 billion euro was set, which was the original requirement in the medium-term programme. The creation of a primary surplus, according to Finance Minister Evangelos Venizelos, is the most critical parameter in the new budget.

On the one hand however,never, at least during the past 10 years have the fiscal targets been achieved in the implementation of the budget and, on the other hand, given that at present the ability of citizens to pay additional tax is zero, it is doubtful whether additional measures to collect taxes will provide the pre-calculated revenue. Therefore, as economic analysts stress, the likelihood of an internal suspension of payments is particularly high for 2012.

The fact that during the crisis, the deviations from the objectives have always been very great, even under the strict monitoring of the Troika, is very indicative.

Deviation

In 2009, in Greece there was a full fiscal deviation because from the forecasted deficit of 6.6 percent of GDP, it reached 16%. Last year again initial forecasts for a deficit of around 8.1 percent were disproved, as the percentage eventually exceeded 10%. The difference between the two percentage points is nearly 5 billion euros.

This year, despite continuous revisions of the objectives that led to forecasts for lower revenue at the end of the year, in the first nine months "the black hole" of the budget reached 3 billion euros. During this period, net income amounted to 3.8 billion euros per month, while primary expenditures totalled 4.2 billion euros.