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Greece in Line for a Third European Bailout

Posted by Joseph Trevisani on Mar 27, 2014 1:22:00 PM



ScreenHunter 2162 Mar. 27 14.36                                                                    

Gone are the days when a Greek bailout roiled markets around the world. 

The Mediterranean country is on the verge of securing its third aid package from its European benefactors, the so-called troika, the International Monetary Fund, the European Commission and the European Cantal Bank, to the stifled  yawns of traders from Tokyo to New York and everywhere in-between.

Greece is thought to need around and 8.3 billion euros ($11.4) to avoid bond defaults in May, though figures from 6 billion euros to 20 billion euros have  been quoted by various parties in the talks. There is also 9 billion euros remaining from the 240 billion ($330.7) of previous bailouts. It is destined for the Greek banking system and awaiting disbursement permission from the European authorities.  The bulk of the new funds are expected to be used to help Greek banks meet the capital requirements of the new European regulator, the European Banking Authority.

The government of Prime Minister Antonis Samaras is expected to receive the commitment from the representatives of the troika sometime in mid-April according to unnamed officials quoted by Bloomberg. The IMF is said to be offering a payment of 3.6 billion as part of the negotiations. The parties have been in discussions on and off for seven months.

Once again the Athens government will need to make promises on budgets, government employment and other financial items to secure the loan, though, as in past bailouts, performance is likely to fall short of its goals.

Any bailout agreement will need to be approved by the Greek legislature where Samaras' Conservative New Democracy Party holds a thin three seat majority in coalition with the Socialist PASOK headed by Evangelos Venizelos, the last PASOK finance minister before the coalition.

Public sector workers held a 48 hour strike last week to protest the plans to cut another 11,000 employees from government payrolls.  Greek unemployment is 28 percent, the highest in the EMU. Greek unions have said they will hold a general strike April 9th to block further austerity measures by the government.

The Greek government has promised that it will not impose any new taxes, in response to the claim by the opposition SYRIZA (Coalition of the Radical Left) party, while threatening that a defeat of the new agreement with the troika risks an exit from the euro.

Prime Minister Samaras has said that after the latest bailout agreement is passed the next item on his agenda will be to return Greece to the bond market with a small four billion euro issue.

Municipal and European parliament elections are scheduled for May. SYZRIA, led by Alexis Tsipras is ahead in polling. He has said that he would force revision to the austerity terms of the two prior bailouts or renege on the loan payments and potentially default on Greek debt. A default could push Greece from the euro zone and leave it bankrupt, unable to borrow in the credit markets.

Many Greeks blame the austerity forced on the country by its European lenders for the prolonged recession, now in its seventh year.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Chart: Bloomberg





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