Many analysts are focused on Spain's problems t
oday (July 24) as its borrowing costs soar to record levels and regional governments may require their own bail-out funds.
Spanish 10-year bond yields are up 12.2 basis points at 7.511pc while Italy's have jumped 25.5 basis points to 6.546pc.
However the spotlight may soon again focus on Greece again.
Inspectors from the IMF, European Commission, and European Central Bank, the Troika, are in Greece meeting with Greek officials. The Prime Minister Antonis Samaras promises he will push ahead with deep cuts demanded by the Troika. However, Samaras also complained about foreign officials he did not name for trying to sabotage his attempts to meet the Troika's demands.
"I say it openly and publicly, they undermine our national effort. We do all we can to bring the country back on its feet and they do all they can so we can fail,"
No doubt Samaras had in mind the German minister of the economy who over the weekend said he did not expect Greece could fulfill its obligations under the bail-out conditions.This failure could very well result in Greece not receiving further bail-out funds. In turn that could lead to default on debt and possibly Greece would leave the euro zone. Some analysts have predicted this outcome was just a matter of time. However, this scenario seems to be becoming more acceptable as the crisis drags on.
While the Greek coalition government wants to revise the conditions for the bailout money there seems to be less and less patience with Greece. Members of the Troika are complaining that Greece is not following through on its commitments. An anonymous source within the Troika said:
"The programme has not produced the desired results because it was not implemented. We must first see the government fulfill its commitments and then decide if it works or if it needs to be adjusted."
Officals from the Troika complain that the Greek government has not carried out the privatizations demanded or opened closed markets and professions. No doubt this may not be politically possible under the circumstances. Output in Greece has been declining by 7 per cent this year and unemployment is almost 24 per cent.
The government was supposed to have outlined 11.7 euros in cuts for the year 2013 and 2014 back in June but has come up with only around 8 billion in cuts so far. The IMF and EU have both issued statements indicating that Greece was behind schedule in implementing the Troika demands. The program will need to be relaunched if Greece is to receive more funds. An IMF spokesperson said:
"An IMF mission will start discussions with the country's authorities on July 24 on how to bring Greece's economic program, which is supported by IMF financial assistance, back on track,"
The next disbursement of the bail-out funds would probably not be until September. Meanwhile Greece has to cover a bond payment in August and so a bridge loan may be needed. The Greek government would like two more years to cut its deficit to three per cent of GDP.
Ben May of Capital Economics
pointed out that this would be costly almost 40 billion euros. Other countries in the Euro zone would probably not support this. In a report May said:
"Policymakers face a tough task to reach an agreement on what Greece must do to receive future bail-out loans that is deemed acceptable to all parties. For now, then, we still think that Greece could exit the single currency by the end of the year,"
The opposition SYRIZA party which came a close second in recent elections is already critical of the fact that the coalition government is meeting with the Troika at all. The party president Alexis Tsipras said
:"The government has no business discussing with three clerks on how to implement a failed programme,""New tough austerity measures are insane and will lead us to bankruptcy and away from the euro zone."
A Troika decision to deny Greece further funds seems more and more likely. For more see this article.