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A new report by the International Monetary Fund on Greece requires  12 billion euros of more austerity measures in order to close the funding gap for both 2013 and 2014.  

The IMF expects Greece to pass these new measures within the next three months. Otherwise, it will withhold the next tranche of aid to Greece, due in 3 months.

This goes to show that the successful completion of the second bailout for Greece just bought more time, even though it finally included a huge restructuring of debt, worth over €00  billion of debt forgiveness.

Tight Schedule After Restructuring

Greece just got around €1.6 billion from the IMF and around  â‚¬5.9 billion from the EU. The vast majority of the money went back to the European Central Bank – a payment on bonds. Only a small portion went to the Greek government. The ECB was exempt from the haircut that private bondholders received.

Greece is facing general elections on April 29th or May 6th. Evangelos Venizelos, who was the finance minister that led to the second bailout, quit his job to focus on the electoral campaign as the leader of center-left party PASOK.

Greece already passed severe austerity measures. It’s hard to see how the politicians campaigning in the elections will act to pass another €12  billion of cuts. That’s 5.5% of GDP.

Once a new government is formed, it will have to face these demands. Apart from  complying  with the IMF demands (reported by Eurointelligence, there are two more options:

  • Getting more help from the EU: The IMF share is already smaller than in previous bailouts. The European Union could complete the gap, but this has its won political hurdles.
  • Another restructuring: The market already prices another debt restructuring or default. The new bonds carry very high yields. Rating agencies put Greece in rating that range from default to junk. So, another haircut / default is also on the cards.

The Greek drama is currently on the  back burner, but it won’t stay there for too long. Euro to dollar  never celebrated the Greek bailout and has room to fall if things get worse.

Further reading:  Loophole Could Complicate Greek Bond Swap and Bailout