Jean-Claude Juncker, Head Of Eurozone Finance Ministers, Says Greek Creditors May Lose 60 Per Cent

Greece Debt Crisis Creditors 60 Percent

First Posted: 10/11/11 06:27 AM ET Updated: 10/13/11 03:32 PM ET

ATHENS, Greece - Greece is likely to receive the next batch of its bailout loans in early November, international debt inspectors said Tuesday, if the eurozone and IMF approve the conclusions of the financial review they have completed.

The inspectors, however, said Greece's deficit targets for 2011 were "no longer within reach," and that while new austerity measures for 2012 were adequate, more was needed for the years 2013-14.

The report by the officials from the International Monetary Fund, European Commission and European Central Bank, collectively known as the troika, potentially averts a bankruptcy looming over Greece.

But their call for new measures reinforces the view that Europe's strategy in getting Athens out of its debt hole is not working as hoped and that an alternative approach is needed.

"Greece has missed the bus, yet again," said Vangelis Agapitos, an independent economist in Athens. The "troika is fulfilling its obligations and Greece, for one more time, is missing its targets on privatizations, on cutting the deficit, on doing the steps necessary to bring the economy into a competitive and efficient mode."

Greece has been dependent since May last year on a €110 billion ($150 billion) bailout package from other eurozone countries and the IMF. Without the next €8 billion loan installment, it will run out of money to pay salaries and pensions in mid-November.

To qualify for the funds, the government has pledged reforms aiming to slash the deficit and overhaul the economy. But it has frequently missed its targets, forcing it to pile on ever more austerity measures such as increased taxes and cuts to public sector salaries and pensions.

That has led to frequent strikes and protests — on Tuesday, protesters took over several state buildings, including the Interior Ministry and the country's General Accounting Office. A strike by municipal workers has left piles of garbage on Athens' streets, while motorists formed long lines at gas stations after workers at a refinery walked off the job.

Outside parliament, as lawmakers began debating legislation for the latest austerity reforms, hundreds of local government workers blocked traffic at the main entrance, blowing whistles and chanting anti-government slogans.

"We believe that voting this bill will bolster the country ... We have 10 days in front of us for the bill to be passed," Venizelos said during a financial committee meeting in the legislature.

The government described the troika statement as "balanced, positive and practical," while opposition parties described it as a recipe for continued recession.

"The Greek people are making greater sacrifices but state revenues are lower in the first eight months of the year, compared to 2010. That is something that should concern us. Judging by the statement of the troika, this will continue for some years to come," conservative committee debate leader Nicholas Legas said.

The troika had suspended its review in early September amid talk of missed budget targets, returning to Athens about two weeks ago to complete their inspection. Their findings must now be approved by the other eurozone countries and the board of the IMF before Greece can receive the next loan installment. The troika said that would be "most likely in early November."

The review's delays and the fact that yet more austerity measures are required of Athens suggest the eurozone may be realizing that its handling of the country's problems need to be reassessed.

The payout of the next loan installment is also tied to a second rescue package for Greece agreed in July, which will likely see steep losses for banks holding the country's bonds. That package could be renegotiated, however, to lighten Greece's debt load further and give it a better chance of getting out of its crisis.

Eurozone leaders hope to agree on a comprehensive crisis strategy at their summit on Oct. 23. It is expected to include a new funding package for Greece, a plan to make Europe's banks fit to sustain losses on bonds and a boost in the currency union's bailout fund so it can stop the crisis from spreading to larger economies.

The European Commission is due to unveil on Wednesday its proposals on how to boost banks' ability to withstand the crisis.

The troika said Greek authorities "continue to make important progress, notably with regard to fiscal consolidation," but more was needed.

"To ensure a further reduction in the deficit in a socially acceptable manner and to set the stage for a recovery to take hold, it is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly," it said in a joint statement.

Mired in a deeper-than-expected recession, Greece's economy is now only expected to recover from 2013 onwards, the debt inspectors noted.

"There is no evidence yet of improvement in investor sentiment and the related increase in investments," it said, though it noted exports were rebounding.

The inspectors said the government had achieved a "major reduction" in the deficit despite the recession. However, it said, "the achievement of the fiscal target for 2011 is no longer within reach," partly because of a further drop in economic growth but also because of slower implementation of some measures, such as privatizations.

The troika said the Greek government had nevertheless committed to raising €35 billion through privatizations by the end of 2014.

Additional measures the government recently announced — which include extra taxes and suspending about 30,000 civil servants on partial pay — "should be sufficient to bring the fiscal program back on track."

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Gabriele Steinhauser in Brussels and Derek Gatopoulos and Theodora Tongas in Athens contributed to this report.

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Filed by Daniel Tencer  |