BRUSSELS (Reuters) - Greece’s bid for a new bailout got close inspection on Tuesday from euro zone officials poring over the details of Athens’ budget to decide whether it has met conditions to get the money.
Even if it passes muster, the second round of funds may only be paid out once Greece proves it has taken action.
Senior euro zone finance ministry and treasury officials - collectively known as the Eurogroup Working Group - have to decide if euro zone finance ministers can sign off on financing program when they meet in Brussels on Wednesday.
If they do, and ministers give their approval, it will effectively mean that Greece will have received a total of 240 billion euros in emergency loans and other support from the European Union and International Monetary Fund over the past two years - equivalent to 110 percent of annual output.
The first package, worth 110 billion euros, was agreed in May 2010. A spokesman for the head of the Eurogroup said euro zone finance ministers would meet from 1700 GMT on Wednesday.
“I am confident that - as far as I know the details - Greece will get more help,” Austrian Finance Minister Maria Fekter told reporters on Tuesday.
The devil, as always, is in the detail.
After an emergency meeting last Thursday, euro zone finance ministers said they would sign off on a new program if Greece could find a further 325 million euros of spending cuts, secure parliamentary approval for the overall package, and get the leaders of its major political parties to sign up.
Since then, parliament has voted in favour and talks are going on over finding extra budget cuts, with sources saying there may be room to move on the defense budget.
But not all party leaders have yet committed and some - in particular Antonis Samaras, leader of the conservative New Democracy party, which is ahead in polls - are reluctant to do so with elections expected in April.
One euro zone official with knowledge of the talks said he expected the Greek leaders’ approval to be forthcoming.
“The vote in parliament took place and the 325 million euro of savings has apparently been agreed too. As for the letter - we are told this will be no problem at all,” the official said.
If euro zone ministers give their approval on Wednesday, it should pave the way for Greece to restructure around 200 billion euros of privately held debt, with the exact terms of a bond swap to be announced after the ministers’ meeting.
At the moment, private investors look set to lose up to 70 percent of the net present value of their Greek bond holdings, which will cut Athens’ debts by 100 billion euros, from around 350 billion euros currently.
By comparison, the total value of goods and services produced by Greece last year was 215 billion euros, down 6.8 billion euros on the year before.
The private sector debt restructuring, which has taken nearly eight months to negotiate, will be made possible thanks to 30 billion euros of funding from the euro zone’s bailout fund, the European Financial Stability Facility.
If all Greece’s commitments are in place and the bond swap goes ahead without complications, the aim is to bring Athens’ debts down to 120 percent of GDP by 2020.
The IMF, European Commission and European Central Bank, the troika of lenders overseeing Greece, must decide if that target is going to be hit, and if not, what further debt reduction measures can be taken.
It may be necessary for official sector holders of Greek bonds - the ECB and other euro zone national central banks - to forgo profits on the Greek government bonds they hold, thereby providing further relief to Athens. That issue is also expected to be discussed by ministers and ECB officials on Wednesday.
Because of a long history of missed targets, Greece will not see any new cash from the second program until the end of February, by when it is expected to have implemented a series of steps the EU calls “prior actions.”
These constitute 11 fiscal, structural and financial reforms to government finances, labor markets and the social security program, as well as steps to overhaul the banking sector.
“There will be no disbursement without implementation,” the chairman of euro zone finance ministers, Jean-Claude Juncker, said last Thursday, making it clear that the EU is not prepared to take a chance on Greece meeting its obligations.
Additional reporting by Mike Shields in Vienna and George Georgiopoulos in Athens. Editing by Jeremy Gaunt.