The Troika, that is the European Commission, The European Central Bank, and the International Monetary Fund are set to meet with Greek officials on July 24. In preparation for the meeting the Greek government approved a further 11.5 billion euros in cuts to placate its creditors. However this may be too little too late. There is already a report in the German newspaper Der Spiegel indicating a decision has been made not to extend further credit.
If true, this is somewhat surprising in that the newly former coalition was intent on solving the crisis and making sure it received the next tranche of funds under the bailout plan. Bloomberg reports that Der Spiegel article claims that IMF officials are becoming impatient with Greece. According to a translation of the report
“High ranking officials at the Fund have informed the European Union that the IMF is no longer willing to provide Greece with more aid,”
The IMF wants Greece to reduce its GDP debt ratio to 120 per cent of GDP in order for it to be sustainable in the longer term. However the officials are pessimistic about the ability of Greece to do so. This pessimism is warranted. Given the austerity policies involving severe cutbacks to spending, demand will fall. Already unemployment is soaring over twenty per cent and production is dropping not growing. The report noted “Giving the country more time to meet its targets would, according to troika estimates, mean an extra 10 to 50 billion euros in relief aid,” The political situation in Europe is such that many governments are simply not willing to extend that much more aid.
Greece already has a 3.2 billion euro bond due on August 20 but no more money is due to Greece until after the report of the Troika is analyzed in September! It is not clear how Greece will pay for the bond. Perhaps the European Central bank will provide aid or the Greek government will issue short term T Bills.
The Greek crisis is obviously far from over. As many analysts have predicted Greece may yet leave the euro zone. Stock markets next week may reflect this new uncertainty. For more see this article.