Q&A - How is Greece measuring up to EU/IMF bailout targets?
2011-04-15 22:20:00 (Reuters)
Greece will sell stakes in state enterprises and target extra savings to meet the terms of an EU/IMF bailout, the government said on Friday.
Nearly a year into the 110 billion euro rescue plan, Athens has slashed its deficit and embarked on tough reforms but it is struggling to cope with weak revenues and a deep recession. Analysts, and even some euro zone officials, are increasingly convinced it will have to restructure its debt eventually.
Here are key facts about Greece's successes and failures in complying with the targets of the bailout, the first ever agreed to rescue a esuro zone member in a crisis that has spilled over to Ireland and Portugal and shaken markets worldwide.
WHAT ARE THE TARGETS?
* Greece's euro zone partners and the International Monetary Fund saved Greece from bankruptcy in May 2010 when they agreed to lend it 110 billion euros ($158.4 billion) over three years in return for a tough austerity program.
The deal requires Greece to cut public spending, get people and businesses to pay their taxes, open up a highly-regulated economy, modernise its administration, sell state assets and cut its deficit below 3 percent of GDP in 2014.
In return, and as long as it meets targets, Greece gets quarterly aid loans, at a rate cut to about 4.2 percent in March with repayments extended to 7.5 years.
* In February, Greece agreed to a new target of 50 billion euros of privatisations to cut its debt and was told by its international lenders to target further savings this year and up to 2014 to compensate weak revenues and meet targets.
* Greece has so far received a total of 53 billion euros in four instalments, nearly half the overall package. Ireland has also signed a bailout deal with the EU and the IMF and Portugal asked for help earlier this month.
HOW IS GREECE FARING ON ITS DEFICIT TARGET?
* Greece has cut public sector wages, slashed public investment, frozen pensions, hiked taxes and overhauled the pension system to cut its deficit.
As a result mostly of drastic spending cuts, it met cash deficit targets in 2010 and reduced the general government budget gap by about 6 percentage points.
But this was not enough to meet an EU target to cut the deficit to 8 percent of GDP, as Greece's efforts were hampered by weak revenues and the impact of 2009 budget data revision. Last year's deficit will be revised up on April 26 to over 10 pct of GDP, making it even harder to stay on target this year.
Continuing difficulties to boost tax collection and other revenues became evident early this year. The government said it was on target thanks to spending cuts, but data showed revenues were 11 percent below target in January-March.
* The government said on Friday it would agree additional austerity measures worth 3 billion euros to cover slippage risks for this year, and was targeting 23 billion euros in savings in 2012-2015 to meet the bailout targets.
Tax exemptions will be cut to generate 2 billion euros or 0.9 percent of GDP in 2011-2015. The government gave little more detail on how the new savings will be achieved.
* Analysts said the lack of details on Friday's fiscal plan were disappointing and the measures, though necessary, were unlikely to ease market fears that Greece would not manage to get back to bond markets next year and that a restructuring was increasingly likely.
Some warned more austerity risked dragging Greece further into recession, making it even harder to boost revenues.
WHAT ABOUT PRIVATISATIONS?
* Greece has reluctantly agreed to target 50 billion euros in privatisation proceeds by 2015, a target which many analysts and Greek politicians see as optimistic.
It said on Friday it would reduce its stakes in power company PPC and natural gas operator DEPA to 34 percent, maintaining state control over their management.
It will further cut its 20 percent holding in telecom operator OTE this year, and its 34 percent stake in Europe's biggest gambling company OPAP. A government official said the entire OPAP holding will be sold.
The government also said it expected its 77 percent participation in ATEbank to fall after a planned 1.26 billion euro capital increase later this year. Greece plans to sell stakes in Hellenic Postbank, a small and well- capitalised lender, by 2013, but gave no targets.
* The government did not say how much it was hoping to raise through these specific asset sales. On current market values, Greece would raise about 1.6 billion euros from OPAP and about 500 million euros each from PPC and OTE.
The most likely buyer for the OTE stake would be Deutsche Telekom, which already owns 30 percent of the company and is obliged to buy another 10 percent by the end of the year if the government decides to sell.
OPENING UP THE ECONOMY, FIGHTING RECESSION
* Athens has agreed a number of far-reaching reforms including a shake-up of the pension system, changed labour laws to make firing easier, increased taxes and a start to opening up closed professions such as truck drivers and pharmacists.
But its lenders say it is too slow in implementing these reforms, in particular to improve tax collection, open up the economy and streamline the very large public administration.
* Meanwhile, austerity measures are hitting the economy hard, with macroeconomic indicators showing a bleak picture.
The economy is seen contracting by 3 percent this year after a 4.5 drop last year, unemployment has climbed to a 15.1 percent record, retail sales slumped 16 percent in January, construction is falling hard and credit growth is slowing.
