Greece Starts Negotiating Third Bailout Program
World Economy

Greece Starts Negotiating Third Bailout Program

Greece starts a new round of negotiations in Brussels aiming at a third bailout program and a new loan of 46-50 billion euros ($51-56b), according to Greece’s real.gr report citing an International Monetary Fund leak to the Financial Times.
The IMF has hardened its stance towards Greece and it will not disburse the remaining 15.4 billion euros allocated until 2016. According to the organization, Greece is on track to run a large primary deficit, implying that the debt will start to rise without reforms or debt write-off, and European partners do not seem willing to cut part of the debt.
In order to keep Greece in the eurozone, the European Commission and the European Central bank are considering a new loan of about 19 billion euros in order to buy off the Greek debt to the IMF. The IMF will depart from the financial side of the bailout program and will remain as a technical advisor.
The European Financial Stability Facility (EFSF) will lend 27 billion euros to buy Greek bonds from the ECB, reducing dramatically the cost of servicing the debt and obviating the need for primary surpluses.
However, Athens has lost a big part of its negotiating power after admitting that it needs about 50 billion euros to stay afloat.
EC President Jean-Claude Juncker expressed the view that the new Greek government has inverted the progress made by the previous, Antonis Samaras government. He said that Athens is asking Europe to respect Greek democracy, but Athens must respect the democratic will of the rest of Europe as well.
Juncker essentially prepared the ground for new fiscal measures, while EC officials explained to the press that merging the fifth review of the current bailout program with the new bailout does not negate the need for the completion of the review.

 Bonds Rise
Greek bond yields rose on Tuesday on reports that the International Monetary Fund may cut a funding lifeline to Greece unless its European partners accept more debt write-downs.
The warning has been made by the IMF’s European head, Poul Thomsen, to eurozone finance ministers at their meeting in Riga last month, came amid negotiations between cash-strapped Greece and international creditors on reforms needed to unlock new aid, the report said.
It is said to be based on data that shows Athens’ budget surplus is set to turn into a deficit this year, a further blow for a country on the brink of bankruptcy.
Sources told Reuters that the IMF was not specifically pushing for another round of debt relief, rather outlining the options facing Athens and its creditors if its fiscal mathematics did not add up.
 Growth Slashed
Brussels drastically slashed its forecasts for the Greek economy on Tuesday, warning the ongoing political turmoil in Athens would lead to almost no growth this year and a return to soaring national debt levels.
The European Commission cautioned that its forecasts, which were based on the status of bailout talks two weeks ago, were contingent on Athens reaching a deal to secure €7.2b in financing by June and a subsequent return in business confidence and liquidity for both the cash-strapped government and Greek banks.
Even with those optimistic assumptions, however, the commission predicted the Greek economy would grow by only 0.5 percent of gross domestic product this year, down from a robust 2.5 percent projection made just three months ago. Unemployment, which was forecast to decline to 22 percent next year, will now come down to only 23.2 percent.
“Positive momentum?.?.?.?has been hurt by uncertainty since the announcement of snap elections in December,” the commission wrote in its 186-page report on all 28 EU economies. “The current lack of clarity on the policy stance of the government vis-à-vis the country’s policy commitments in the [bailout] support arrangements worsens uncertainty further.”

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