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Catch-22 – death knell of the euro?

A European Commission spokesman says the next Greek bailout tranche, originally scheduled for December, will now be paid out in March

So, is this a resounding death knell to the euro and a breakdown of the eurozone?

Reuters reported (emphasis ours):

The next €5 billion tranche for Greece that was originally scheduled to be paid in December 2011 is now to be paid out in March 2012, Commission spokesman Olivier Bailly said.

A further €10 billion euros that Greece was originally to receive in March this year will now be paid only in June and all of those sums can also be delayed if inspectors judge Athens is failing to deliver promised fiscal reforms.

"That cannot be changed," Bailly said, referring to the three-month rhythm in paying out tranches of the first Greek rescue programme.

Sounds a touch dramatic – but remember that, only on Tuesday, Greek government spokesman Pantelis Kapsis told Greek TV station Skai TVthat (emphasis ours):

"The bailout agreement needs to be signed, otherwise we will be out of the markets, out of the euro."

If the seemingly threatening statement was anything to go by, we don't think they will be happy to hear the original rescue-deal payments are being delayed.

While Greece is waiting to secure its second round of bailout money, worth €130 billion, from the European Union (EU) and the International Monetary Fund (IMF), some market participants have commented that this is a resounding "punishment" to the country after the second round of bailout talks collapsed. This was due to the unwillingness of the then prime minister George Papandreou's government to tighten fiscal policy through a series of measures.

Greek concessions included wage cuts for public sector workers to 60%, 30,000 public sector workers to be suspended, a new pay and promotion system for 700,000 civil servants to be installed, while pensions and lump-sum retirement pay were to be cut alongside higher retirement ages and a lowering of the tax-free threshold to €5,000 a year.

Also from the same statement in Reuters (emphasis ours):

Last year, Athens repeatedly said it faced the risk of defaulting if the EU and IMF did not pay out scheduled tranches.

Europe's political leaders have made it clear that as long as Greece meets criteria on reforms, it will be financed as necessary by the EU and IMF, but investors with money in Greek bonds are watching its cashflow closely.

The payouts are part of the aid that Athens has been promised under a €110 billion joint EU/IMF financing programme in 2010 in exchange for fiscal austerity and structural reforms that are to make public finances of the highly indebted country sustainable.

Out of the total, €73 billion have already been paid, and €37 billion remain to be disbursed.

The delay in the payout of the money last year, which meant €8 billion from September were only paid out in December, was caused by Greece's failure to keep up with its commitments to implement austerity and structural reforms.


- Euromoney Skew Blog