TIMELINE-Financing Greece - key decisions over the next 12 months


By Jan Strupczewski

WASHINGTON, Oct 12 (Reuters) - The euro zone will have todecide over the next 12 months how to close a financing gap inthe current Greek bailout, how to help the country cut its debtto sustainable levels and whether to lend it more money for 2015and 2016.

The three issues are likely to be dealt with separately atdifferent points in time, although the question for the eurozone is more about precisely how to help Athens, rather than if.

This is because euro finance ministers decided already onNovember 27, 2012 that they would provide "adequate support toGreece during the life of the programme and beyond until it hasregained market access, provided that Greece fully complies withthe requirements and objectives of the adjustment programme."

So far, officials say that Greece is on track to have aprimary budget surplus this year -- the main criterion for someform of further debt relief -- and seems to be broadly on trackwith other reforms too.


The first issue that euro zone ministers will have to tackleis a financing gap in the Greek bailout in the second half of2014. The European Commission estimates this gap at 3.8 billioneuros and the IMF, which co-finances the bailout, at 4.4 billioneuros in 2014.

While the euro zone bailout ends at the end of 2014, the IMFprogramme runs until the beginning of 2016. To disburse aid toGreece the Fund needs to know that the euro zone programme isfully funded 12 months ahead.

This forces the euro zone to decide now, at the next meetingof finance ministers on November 11, where to find the missingmoney at least for the second half of 2014.

The gap was created by the refusal of euro zone centralbanks to roll over their holdings of Greek bonds maturing duringthe bailout, as initially envisaged by euro zone financeministers, and lower than expected privatisation revenue.

The gap could be filled in several ways, officials said:

1. Greece can spend less and/or have higher tax revenues.This is tricky, because any further spending cuts by Athenswould be politically very difficult and could be economically counterproductive. Higher tax revenue depends on the rate ofeconomic growth, which is tough to precisely predict.

2. There are around 11 billion euros of so far unusedbailout money that was originally earmarked for therecapitalisation of Greek banks. How much of that sum mightstill be needed to strengthen smaller Greek banks will be knownonly later this year. Redirecting the unused part of the moneyto fill the gap would be politically attractive, because itwould not require parliamentary approvals in various euro zonecountries where public opinion is strongly against lending moreto Greece.

3. Greece could sell more state-owned assets. The success ofthat depends on demand for Greek assets. One of the ideas toaccelerate the process is through securitisation of real estate.

4. Greece could issue short-term bonds. The success of thatdepends on market sentiment in late 2014.

5. The euro zone could lend Greece more money. This would bepolitically difficult, because it would require the approval ofseveral national parliaments, including countries where there isstrong opposition to any further lending.


Euro zone finance ministers promised that if Greece reachesa primary surplus for 2013, and meets all other conditions ofthe bailout, they would consider further help to make sure thedebt falls substantially below 110 percent of GDP in 2022 from apeak of 175.2 percent expected this year.

While Greece seems on track to reach a primary surplus in2013, this will be independently verified by the EuropeanUnion's Statistics Office (Eurostat) only in April 2014 and thediscussion on debt relief can take place only after that.

The IMF has called for the euro zone to simply write offsome of the loans it has made to Greece, but this idea has nosupport in euro zone capitals.

Instead, EU Economic and Monetary Affairs Commissioner OlliRehn has said, the relief is more likely to come in the form offurther interest rate reductions and a lengthening of maturitiesof the loans. The average maturity of loans to Greece is already30 years, but some officials have said these could be increasedto, for example, 50 years.


When the current bailout programme expires at the end ofnext year, Greece is unlikely to be already able to fully funditself on the market, euro zone officials have said.

In line with the euro zone finance ministers' statement fromlast November therefore, Athens is therefore likely to getfurther financial support.

How and how much will have to be decided in the second halfof 2014, officials said.

"The general expectation in the market is that there will bea another programme," Klaus Regling, the head of the euro zonebailout fund ESM, told a seminar in Washington. "A thirdprogramme is probably needed. It seems likely that this mighthappen," he said. "My expectations would be very much like theprevious programmes -- long maturities, and low interest rates."

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