Next steps for Greece

  • 13 February 2012
  • From the section Business
  • comments
Greek protests outside bank
Image caption Protests have gripped the streets of Athens since last week

With Sunday's vote in the Greek parliament, the country's 130bn-euro ($170bn; £110bn) "rescue" from the European Union and the IMF has lived to fight another day.

But there are plenty more steps to go before Greece can obtain the first tranche of that new bailout money and make that crucial debt repayment in five weeks time.

You don't have to spend much time examining the country's budget, or its economy, to see that making that payment is the least of it.

Even with the 130bn-euro programme in place, it's difficult to find a reputable economist who thinks Greece's stock of public debt is sustainable.

As it happens, the so-called troika who overseee the bailout - the IMF, European Central Bank and the European Commission - are due to present their answer to that question this week, possibly in time for the meeting of eurozone finance ministers which will consider whether Greece has now, finally, done enough to qualify for more support.

I do not know what that troika's debt report will say. But I can confidently predict that Greek debt as a share of GDP will be higher than it was the last time. It always is.

In its December staff report (based on information gathered in the autumn), the IMF estimated that Greece would come out of 2011 with public debt worth 162% of GDP.

But that was when it thought GDP would be around 217bn euros. It's now likely to be around 208bn euros, meaning the 350bn euros in outstanding debt will be worth the equivalent of 168%.

That is just what has happened in a few months, on the basis of publicly accessible data. The troika's private estimate could easily be worse.

Either way, the new debt report will put a number to the "financing gap" in the 130bn-euro package that I and others have been talking about for weeks.

In troika-land, "debt sustainability" for Greece is a debt stock of 120% of GDP. Many would say it's much lower than that, for a country with such dire growth prospects, but let's try not to think about that for the moment.

If you go with the 120% assumption, the financing gap is the difference between what private sector investors are likely to agree to, as part of the "PSI" piece of the package, and the amount needed to turn a 168% (and rising) debt mountain into a 120% one by 2020.

Back in December, the leaders agreed that the "official sector", probably the EFSF, could contribute "up to 30bn euros" to this effort, to sweeten the deal for private bondholders.

One way or another, that official sector contribution is likely now to go up, and to include for the first time, an implicit contribution from the ECB (though it's a safe bet that that is not how it would appear on the central bank's balance sheet).

European ministers will discuss all that, if and when they meet again on Wednesday. Assuming the Greeks have come up with around 325m euros in extra budget cuts by then, plus a signed statement from all leading politicians promising never to stray from the troika path, then the 130bn-euro caravan can stagger on again.

However, we now know the German parliament will not vote on the entire package until the very end of February, at the earliest - more likely early March.

It will also take a few weeks to establish the level of private sector participation in the "voluntary" debt swap when it finally gets up and running, which the markets assume will happen on Friday.

A low participation rate wouldn't necessarily kill the deal but it would surely spell further delay.

Read through the last few paragraphs and you will find a lot of "likely's", "ifs" and "assumings" between Greece and the 130bn-euro programme which is supposed to buy it time to rebuild the trust with its European partners and the financial markets, if not its economy.

As ever, the biggest question mark of all - which was not a question at all for last night's rioters - is whether the Greek government is right in its assessment, that qualifying for sticking with the programme is still in the country's best interests.

Ministers believe the country could not formally, messily, default on its debts and then expect to remain in the single currency.

They may be right. The Greek financial system would surely lose access to ECB financing if the country formally defaulted; there is no other institution that could - or would - take the central bank's place in keeping Greek banks afloat, in these circumstances, while it remained a member of the eurozone.

Whether those same leaders are also right, that Greece is better off in the single currency than out, is and will continue to be hotly debated - and not only on the streets of Athens.