Greece’s relief at having its new bailout approved by eurozone finance ministers was tempered on Tuesday by the publication of a confidential European Commission report on the Greek economy, which foresees Athens having to adopt almost 12 billion euros of austerity measures in 2013 and 2014.
The Compliance Report, which was published by Reuters, said that further drastic reductions, equivalent to 5.5 percent of gross domestic product, would be have to be agreed by the end of May to fill “fiscal gaps” in the next two years. Elections are likely to be held in early May so one of the next government’s first tasks will be to find 7.6 billion euros of savings in 2013 and another 4.1 billion in 2014 to stay on track with the fiscal program agreed with the Commission, the European Central Bank and the International Monetary Fund, collectively known as the troika. The savings are likely to come from fresh cuts to pensions, new reductions in social transfers, the further slashing of pharmaceutical and healthcare spending, another round of cuts to defense spending and a restructuring of central and local administration.
“The determination of the Greek authorities to stick to the agreed policies will be tested already in the coming months when the deficit-reducing measures to close the large gap for 2013-14 need to be identified,” it said.
Greece has to achieve a primary surplus of 1.8 percent in 2013 and 4.5 percent in 2014 to continue to qualify for the loans the Eurogroup approved late on Monday. A new debt sustainability analysis by the troika that was presented to the finance ministers suggested that after the bond swap last Friday, Greek debt could fall to 116.5 percent of GDP in 2020 and below 90 percent in 2030.
Finance Minister Evangelos Venizelos revealed in a statement that Greece would receive a total of 172.7 billion euros from the eurozone and IMF until the end of 2015. Of this, 130 billion euros will be from the second bailout, 34.5 billion euros that was left over from the first package and 8.2 billion euros that will be part of the 28 billion in total that the IMF will provide.
In contrast with the first bailout, Greece will receive the loans in small, monthly installments. The IMF will provide 1.65 billion a month until the end of 2014 and the eurozone will supply the rest. In total, Athens will receive 5.9 billion euros this month, 3.3 billion euros in April and 5.3 billion in May.