Greece receives €6.3bn in bailout loans

Commission estimates that Greece will have to find an extra €12.3bn in 2015.

Greece today (28 April) received €6.3 billion from its international lenders, just in time for it to pay back billions of euros of loans to the European Central Bank.

The payment is to be followed by disbursements totalling €1bn in June and July that are conditional on the Greek government achieving certain milestones, such as reducing the regulated profits of pharmacies and introducing legislation on the funding of political parties.

Greece was to receive part of the money that was released today during the fourth quarter of 2013, but it was held up by disputes between the Greek government and its creditors over whether the country was complying with the terms of its bail-out.

But doubts continue over the sustainability of Greece’s finances and whether the country will need a third bail-out, despite having already received around €240bn.

According to a European Commission report published on Friday (25 April), Greece will face a budget shortfall of €12.6bn in 2015, including some €5.5bn over the next 12 months.

Greece should be able to fund this shortfall until May 2015 by raising money on the international markets or by drawing on idle resources scattered across government accounts, according to the report, though it leaves open the question of how Greece will finance its needs after that.

The report underlines that Greece’s international creditors will likely have to provide further loans to Greece, in the form of a third bail-out package, or write off some of Greece’s debt.

According to the report, Greece’s overall debt levels will not meet a target set out by Greece’s international lenders, whereby Greek public debt should be “substantially lower” than 110% of gross domestic product by 2022.

The Commission predicts that overall Greek public debt, which currently stands at 177% of GDP, will fall to 125% of GDP by 2020 and to 112% by 2022.

But such calculations rest on the assumption that the Greek economy, which has undergone six years of recession, will grow by 3.7% in 2016, while its primary budget surplus will reach 4.5% of GDP. The Commission report recognises that Greece’s economy faces many ongoing risks.

Nonetheless, in 2013 Greece achieved a primary budget surplus – which refers to the balance of its budget before it pays interest on its loans and any one-off payments to support the ailing bank sector – of 0.8%. This triggered a commitment by eurozone finance ministers, made in November 2012, to take measures to reduce Greece’s overall debt burden once the government had achieved a primary budget surplus.

The measures would help Greece achieve the target of reducing public debt to “substantially below” 110% by 2022, according to a Eurogroup statement at the time.

Officials are expected to start technical work on how such a reduction could be achieved, although ministers are not expected to discuss the issue before the summer, according to an EU official.

The Eurogroup could cut Greece’s debt burden by reducing the interest rate charged on the bail-out loans or by diminishing the contributions Greece has to make in order to receive EU structural funds, according to the Eurogroup statement.

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