While Ireland may exit its bailout program at the end of this year, Greece is far from getting out of it. Around 10 to 11 billion euros ($13.1-14.4 billion) from the second half of 2014 will be needed to keep it going next year and in 2015. This will be the Third Act of the economic tragedy unfolding in Greece. Jeroen Dijsselbloem, Dutch Finance Minister, confirmed to the European Parliament that “as far as the potential need for a third program for Greece is concerned, it’s clear that despite recent progress, Greece’s troubles will not have been completely resolved by 2014”.
“There will have to be another program in Greece,” German Finance Minister Wolfgang Schäuble said bluntly on August 20th. The two previous bail-outs amounted to about 240 billion euros but that was not enough. According to the International Monetary Fund, one the Troika member, the estimated uncovered funding needed by Greece for 2014-2015 may amount to 10.9 billion euros.
After a huge transfer-loan of €110 billion last year, Greece is once again pending on EU-IMF charity in order to avoid default, or at least, to benefit from a smooth default (assuming such a thing exists). Meanwhile, the Greek economy is paralyzed and tensions grow inside Greece as well as in other EU member states.
It is summertime and everyone is happy to take a brake from what has been a terribly tormented spring. Many of our European politicians and policy advisers (IMF) feel satisfied—or at least claim to be—that they have done the right thing and kept the boat afloat. Now, they say, we just have to consolidate the job to make sure that a new big financial crisis, spurred by disastrous public finance in many EU countries, will not blow in our faces.
The disaster everyone feared for several months finally occurred yesterday – Greece’s credit rating was reduced to junk status and financial markets slumped. Moreover, Portugal’s debt has also been downgraded, Spanish stocks plunged more than four percentage points and in Italy it was difficult to sell government bonds.
Several European countries have used complex fiscal instruments and aggressive bookkeeping in order to meet the euro zone fiscal ceilings, according to an article published in the Wall Street Journal. Indeed, the caps of a debt level below 60% of the GDP and of a budget deficit below 3% is apparently source of trouble even for countries with a reputation of rigorous public finances.
The Fitch rating agency on Tuesday downgraded Greece’s long-term debt ratings as well as those on four of the country’s largest banks, describing prospects for Greek public finances as negative. Greece is now exposed to the risk of losing the small amount of credibility it still has in front of its creditors. The concerns are growing about its ability to pay its huge public debt, estimated to 110% of GDP and budget deficit above 12.7% of GDP. A look at the evolution of the external debt of Greece is illustrating the concern of credit rating agencies and international financial markets: