It already seemed that Greece had a deal with the troika. However, after the IMF acknowledged that Greece will surely miss the debt to GDP target (as if it was a big surprise), a new funding gap of up to 30 billion euros is estimated.
The IMF suggested that the euro-zone government will take a haircut. This is practically a direct transfer of funds to Greece, something that isn’t popular in the northern countries, to say the least. So, Greek PM Antonis Samaras called an emergency meeting with the relevant ministers in order to path up more measures as quickly as possible. The country may run out of money soon.
The second bailout for Greece outlined a 120.5% debt to GDP target for Greece in 2020. In October 2012, it is already clear to the IMF that under current conditions, 136% is more realistic, if not optimistic.
In order to meet the objectives, Greece would not need only more time, but also more money: somewhere between 13 to 30 billion euros.
What are the options?
1) Transfer Union The IMF suggests that the euro-zone will take a loss on Greek debt, or “restructure” its loans given through the EFSF. A nicer term would be Official Sector Involvement (OSI), similar to the Private Sector Involvement (PSI), or big haircut that private bondholders took in March.
Needless to say, Germany rejects that, as it amount to direct transfer of funds from one country to another – a transfer union instead of plain loans. German finance minister Wolfgang Schäuble already cast doubt about Greece’s euro-zone membership.
2) Some Juggling Other options include a buyback program, that was floated last week, or bringing forward IMF payments – moves that seem insufficient.
3) More Austerity: Greece would have to take more measures to cut spending, and not for the first time. However, there are dozens of outstanding measures. already awaiting Greece.
In addition, the labor reform that was recently suggested, is already rejected by one of the coalition members – the Democratic Left. So, new measures could bring the Greek government down.
PM Antonis Samaras is therefore in a rush to get the next tranche of aid before the country runs out of money, probably on November 16th. But now he is also in a rush to pass new measures with minimum opposition from within his government, a task which isn’t easy. So, he called relevant ministers for an emergency meeting on Saturday.
Samaras leads the New Democracy party and currently has the support of the socialist PASOK party. These two parties have a majority even without the Democratic Left, but if the latter party leaves the coalition, the legitimacy of the government would weaken.
The anti-austerity, anti-bailout SYRIZA party is gaining traction in the polls, and the extreme neo-Nazi Golden PArty is enjoying more support on the street as well: they recently introduced Nazi salutes.
The situation is becoming quite fragile, and this could hurt the euro, unless some surprising solution is found soon.