By Peter Spiegel
June 26 2013
Just how off track is Greece’s €172bn second bailout? When the FT reported that a new €3bn-€4bn financing gap had opened up in the programme, EU and International Monetary Fund officials went out of their way to insist there wasn’t a gap at all.
“There is no financial gap. The programme is fully financed for at least another year, so there is no problem, on the premise that we reach a final agreement on the review in July,” said Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup.
IMF spokesman Gerry Rice weighed in with a written statement: “If the review is concluded by the end of July 2013, as expected, no financing problems will arise because the program is financed till end-July 2014.”
Notice the caveats, however. Both Dijsselbleom and Rice say there won’t be a shortfall – as long as the IMF is able to distribute its next €1.8bn aid tranche before the end of July. Why? Because of the new financing gap, which means the Greek programme essentially runs out of money in July 2014. The IMF must have certainty that Greece is fully financed for 12 months or it can’t release its cash, so after July, it must suspend its payments.
Lest any doubt remain, let’s turn to the European Commission and IMF reports on Greece, which make this abundantly clear. When the second bailout programme began early last year, the European Commission’s initial report contained a chart showing projected quarter-by-quarter aid payments that looked like this:
In the latest review, issued earlier this month, the same chart looked like this:
Notice the difference? In the third and fourth quarters of 2014, the €2.3bn in EU aid payments in the original bailout schedule are now €0. Instead, to fill the recent gaps, much of that cash had to be brought forward. Check out the EU payments for the current quarter, for instance. What was originally supposed to be a €3.2bn tranche became a €10.3bn disbursement.
What that means is a Greek programme that is fast running out of cash. In a press release issued Tuesday, the eurozone’s rescue fund said it had disbursed €130.6bn of the total €144.6bn in EU cash committed. So just €14bn left.
Which is why every little bit now counts. The €3bn-€4bn lost through slippage in Greece’s privatisation programme and the failure of several national central banks to roll over their Greek bond holdings may not sound like a lot, but each euro lost brings the day of reckoning that much closer.
So even if Greece dodges the current bullet and all aid payments are disbursed in July, the issue will come back again next quarter when the IMF’s 12-month window no longer exists. Still in doubt? Don’t take our word for it – take the IMF’s. In its own recently-released review of the Greek programme, it had this to say:
The program is fully financed through the first half of 2014, but a projected financing gap of €4bn will open up in the second half of 2014. Thus, under staff’s current projections, additional financing will need to be identified by the time of the next review, to keep the program fully financed on a 12-month forward basis, and the eurogroup has initiated discussions already on how to eliminate the projected 2014 gap.In plain English, the IMF wants eurozone finance ministers to plug that gap, and do it quickly. Everyone may think that it will be easier in three-month’s time, since they will be past the all-consuming German national elections in September, but the IMF is urging eurozone officials to come up with an entirely new third bailout programme.
After all, not only does the EU have to plug the hole in 2014, but eurozone finance ministers have also agreed to extend the Greek programme through 2016 and haven’t provided any money for those final two years yet.
How much will be needed? According to this IMF chart in the same report, probably not all that much. In addition to the €4.6bn total price tag left to fill in 2014, it estimates another €6.5bn will be needed in 2015. By 2016, thanks to a growing primary budget surplus, Greece should be able to pay for itself, the IMF estimates.
The toughest thing here, as usual, will be the politics in the eurozone’s northern creditor countries. They have already committed to yet more debt relief for Greece sometime in the next six to 12 months – which will likely mean taking losses on their Greek bailout loans, already a combustible political issue – so agreeing to a third programme, even a small one, on top of that isn’t going to be easy.
At last week’s eurogroup news conference, EU economic chief Olli Rehn said he was looking forward to “a summer where we don’t have any Greek crisis.” He may get his wish, but the autumn could be far more difficult.