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November 13, 2012

Greece Gets Extension on Meeting Budget Targets

Posted in: Uncategorized

Greece’s international creditors have delivered a minor lifeline to the ruined country, extending the deadline for when they must meet EU budget targets by two years. However, at the same time, the Eurozone finance ministers delayed the releast of a new tranche of bailout funds from Greece, worth 31.5 billion euro.

Greek PM Antonis Samaras has warned that without the new funds Greece will run out of money within days.

The ministers meeting in Brussels endorsed a proposal to extend from 2014 to 2016 a deadline for Greece to reduce its budget deficit, as demanded by international lenders.

The proposal was contained in a report for the ministers which also said the extension would add 32.6bn euros to the cost of the bailout.

The ministers will meet again on 20 November to discuss releasing the latest instalment of bailout funds.

Even if the finance ministers, which followed a plan from the “troika” of the EU, ECB and the IMF, agree to the release of the new bailout funds, some member states must ratify the release through parliamentary action. That includes Germany, which has generally been loath to continue paying out lifeline funds to Greece.

Greece already complied with creditor requests by ignoring large national protests and passing another austerity package, which will raise the retirement age and cut more public sector salaries and benefits.

The delay in the bailout tranche matters because Greece faces an imminent deadline for debt service, and could run out of money. So this concept of granting Greece more time but not more money seems destined to break the country even further. Greece will now have to desperately plunge into the market to try and borrow the remaining funds to cover short-term debts until the tranche gets released. This means that the Greek banking system, which has taken a beating, will have to get financed partially with private lenders, an extremely unlikely scenario. Nationalization of the banks appears on the horizon.

Obviously the grant of more time to reach budget targets does little to pull Greece out of its depression. The budget targets are completely misguided no matter the time horizon, given the state of the country. And given that extending the deadline will cost more money, even though European leaders are wary of giving Greece the money already agreed to, it suggests that this plan will not be implemented as advertised. After all, the targets call for a primary budget SURPLUS in Greece to start paying down debt, which in the midst of 25% unemployment borders on insanity.


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