The Possibility of a Third Bailout for Greece
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The debt ridden country has received the biggest loan in history (£200bn so far from the International Monetary Fund) and their prime minister, Lucas Papademos has said that there might be a need for a third bailout fund. This statement came only weeks after difficult negotiations in Brussels finally secured Greece their second bailout.
Speculation of Recovery
Greece has been locked out of the international market since first seeking help in 2010. The new economic program will see a required cut in public spending of €12bn in 2013-2014. However, Papademos is uncertain that the Greek economy will be able to access capital markets by 2015, when the last financial support programs will end, even with the economic reforms enforce by the troika of the International Monetary Fund, the European Union and the European Central Bank. The bailout added with the bond swap has slashed Greece’s €360bn debt by €95bn and is expected to reduce a further €12bn, when after the restructuring next week, coupons governed by foreign law will be exchanged.
With these developments, Papademos is confident that the Greek economy will be on the rebound by 2015. However, the EU and IMF have missions in Greece to supervise the progress made on reducing deficit and achieving the required targets, there is much more that has to be done before Greece can recover. IMF supervisor Paul Thomsen is of the opinion that it will take Greece “at least a decade” to recover.
Elections and Supervisions
To further complicate matters, Greece will be seeing a change in government with the upcoming elections. The government will have about 60 days to implement structural reforms that are long-overdue and come to an agreement on curbing public spending as much as possible before the troika officers come down for a critical inspection in June.
Despite it being Papademos’ last time speaking to the Parliament, he insisted on the need to limit wasteful spending. One of his senior aides also emphasized the need to not let up the pace of reforms even with the change in government.
To safeguard against future possible financial crises the European Union has agreed to a €500bn as part of the European Stabilising Mechanism and the core of the European Monetary Fund. This ‘firewall’ is meant to act as a permanent bailout fund that combined with the European Financial Stability Facility should total €700bn. This was agreed upon after various discussions about the ceiling of the fund and hinges on 5 instalments of €80bn paid by 2014. What remains to be seen if it will be effective as a fund.