Risks Remain in Greek Bailout

Greece’s lenders warn of very large risks to bailout | Reuters.

In its latest report, the troika highlights three problems with the Greek bailout:

  1. Implementation of the plan by a weak government coalition.
  2. Court challenges to budget cuts.
  3. A chance that spending cuts in 2013 will lead to a greater reduction in GDP and government revenues than projected.

This chart shows why #3 is what will force Greece to apply for a fourth bailout by the fall. Privatization receipts are supposed to earn €1.7bn in revenue next year. Since the Eurocrisis started, privatization receipts always have been slated to bring in revenue next year, yet so far a few million euro has been realized by sales of state assets. You can take that €1.7bn out of the budget picture.

Greece - with policy change

In addition to privatization shenanigans, the troika has consistently overestimated the amount of revenue that the Greek government will earn. 2013 will be no different. Add another €3 to 5bn to next year’s deficit based on the trend from prior year’s misses. Under this more realistic scenario, a budget gap of at least €5bn will open up by the fall.

The ECB at the behest of Germany will fill this hole by allowing Greece to issue more T-Bills with a 4th bailout to come after German elections in the best case scenario. If revenues plunge more severely, the bailout will not wait until the fall.

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