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The rope around the neck of Greece is tightening again

06 January 2012 / 22:01:04  GRReporter
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The rope around the neck of Greece is tightening again as the money from the sixth installment amounting to eight billion euro is already finishing, and the repayment of the new obligations is knocking on the door. Moreover, it is not yet known how the participation of private lenders in the cut of the foreign debt will progress, nor whether the country is ready to sign the second contract for a loan with the European countries.

In mid-March, the country has to pay 14.4 billion euro because of the maturity of an old bonds issue, and following the fall fiasco of Papandreou the tranches from the first Memorandum for financial aid come with a delay of three months. The five billion euro from the first loan that had to be paid in December 2011, will be paid only in March 2012. Following the domino principle the tranche for March for the amount of 10 billion euro will also be delayed and will enter into the national funds in June at the earliest.

"If the mission in January finds that there are any delays we will have to reassess the payment of the tranche in March," said the spokesman of the European Commission Olivier Bagis. From the first Memorandum of assistance, which began in May 2010 Greece has received a total of 73 billion euro. This programme will run from May, 2013 and until then the Mediterranean country has to receive another 37 billion euro, as is stated in the first contract for assistance.

The supervisory Troika from the International Monetary Fund (IMF) and the European countries returns to Greece in mid-January. Then the supervisors will check how far the country has come with the reforms and the formal negotiations for signing the second contract for assistance are expected to begin.

The new funds from the aid are the only hope of Greece narrowly escaping once again uncontrolled bankruptcy. If everything goes smoothly until March this year, 80 billion euro should enter the Treasury, out of which 20 billion euro will go to cover the deficit and the payment of the old bonds. In order for this to happen there are several conditions.

The first is to begin talks of the Troika with the government regarding signing the new loan contract around 16th January 2012. At the same time should be concluded also the negotiations between the Greek State and private creditors for the debt reduction (PSI). Immediately after having completed the first two conditions, the final terms of the new programme have to be negotiated and a special Memorandum for PSI has to be signed, according to which institutional lenders (the European institutions and the IMF) will grant the necessary amounts so as to complete the process of debt reduction . The new funding scheme should be passed for approval by the European countries, the Fund and the Greek National Assembly and then the country will receive its first 80 million euro from the second contract for assistance. Furthermore, its debt will be around 100 billion euro less.

While the pawns on the table do not take their right places, Greece will have no money. The Audit office has suspended all domestic payments beyond pensions and salaries, which are also being transferred to the accounts of the citizens with a delay. Gikas Hardouvelis, who is a former chief economist at Eurobank and who is currently the economic adviser of the Prime Minister stressed that the negotiations should be completed in the fastest possible way for the new loan agreement to enter into effect. Otherwise the consequences for the country may be irreversible.

Tags: EconomyMarketsGreeceGikas Hardouveliscrisisassistance loantranche
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