Troika warns time running out for Greece

A man walks behind a broken storefront in Athens on October 20, 2011. Greece faced a critical austerity vote aimed at averting a debt default as protestors rallied for a second day after violence injured dozens on the opening day of a 48-hour general strike.

Story highlights

  • Greece should get its next €8bn in international aid, its lenders say
  • However, they warn the economic outlook is deteriorating so rapidly that the second bail-out plan is no longer adequate
  • The report acknowledges for the first time the €50bn privatisation programme is off course
Greece should get its next €8bn in international aid, but its economic outlook is deteriorating so rapidly that the second bail-out plan, agreed just three months ago, is no longer adequate to keep Athens afloat, international lenders have determined.
The findings are part of a highly-anticipated report by the so-called "troika" of Greek lenders -- the European Commission, International Monetary Fund, and European Central Bank -- and sent to eurozone countries this morning. The FT obtained a copy of the report.
According to the findings, European Commission monitors believe the next aid tranche should be paid "as soon as possible" following concessions by Athens to get its fiscal reform and privatisation programmes back on track.
But the report paints a dire picture of the path ahead, saying Greece's "debt dynamics remain extremely worrying".
"When compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated given the delays in the recovery, in fiscal consolidation and in the privatisation plan, as well as the perspective of bank recapitalisation," it finds.
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However, the report does not state how big the new fiscal gap has become. Although such figures are usually included in troika reports, European officials said the formal debt sustainability analysis has not yet been completed, though it will be done by the time finance ministers meet in Brussels on Friday.
The troika report puts the blame for Greece's deteriorating economic outlook on both the broader recession and the government, but notes that the occasionally violent demonstrations in Athens and other Greek cities has contributed to economic unease.
"There is no doubt that Greece is undergoing a recession that is deeper and longer than expected in the previous quarterly report," the study found. "The deterioration in the labour market, with employment falling much faster than expected, uncertainties of political and financial nature, and social unrest and industrial action have weighed on supply and on domestic demand."
The report acknowledges for the first time what has been widely acknowledged in Athens: that the €50bn privatisation programme, which was to contribute €28bn towards Greece's second €109bn bail-out, is now off course as well.
However, officials estimate that it will only delay the programme for "at least a quarter" and that goals of raising €50bn by the end of 2015 "remains viable".