By: DailyForex.com
The financial support granted to Greece through two IMF/EU bailout agreements was not a gift and came with stringent terms designed to put the Greek economy back on a stable footing. In order to ensure that adequate progress was being made towards economic reform targets, the money is being disbursed in tranches. The release of each tranche of funding requires that officials from the IMF/EU/ECB “troika” sign off on Greek progress – without the funding, Greece (and the Eurozone) would be plunged into a fresh crisis.
The Greek people (of course) have had to bear the brunt of the austerity cuts and reforms demanded by the troika, generating considerable hardship and much anger with the political elite. In the spring, this manifested itself with an indecisive election and the threat to elect a left-wing coalition which would tear-up the austerity agreement, provoking a Greek Euro exit and propelling the Eurozone into a deeper crisis. In a second round of elections, Greece moved back from the brink, but politicians had to promise to try to get the austerity measures softened. This has led to suggestions that the Greeks want to be granted a further two years to meet their obligations.
Greece vs. the ECB
The Greek Finance Minister, Yiannis Stournaras, is claiming that Greece has been granted an extension to meet its bailout obligations – but this comes as news to ECB president Mario Draghi, apparently. A new austerity budget will be submitted to the Greek parliament in the course of next week.
Mario Draghi commented to reporters in Berlin that: “The review is not yet finished. I understand progress has been made, but some parts need to be defined, and I don't know anything more than that.”
The next tranche of funding is worth €31.5 billion and should its release not be approved, Greece would run out of funding by the end of November. Given that recent moves by the ECB and EU have gone a long way towards defusing the European sovereign debt crisis and that bodies such as the IMF have suggested that growth must not be sacrificed on the altar of austerity, it would seem likely that Greece will be given some of the breathing space it is asking for.