Monday, June 27, 2011

Another big week ahead for Greece

It will be another big week in the unfolding Greek debt crisis as the authorities continue to adopt a “muddle through” strategy.

The next step is for the Greek parliament to legislate the implementation of its €28billion austerity programme. That debate begins today and is due to be voted on by June 29th.

The pressure is mounting on the Greek opposition leader to endorse the program – he has said he will vote against it. In the statement from the EU Summit at the weekend, the EU council made it clear they are looking for broad political backing for the austerity program:

“The European Council calls on all political parties in Greece to support the programme’s main objectives and key policy measures to ensure a rigorous and expeditious implementation. Given the length, magnitude and nature of required reforms in Greece, national unity is a prerequisite for success.”

Having survived last week’s confidence vote, it’s likely the programme will be passed, although where politicians are involved, anything can happen. This is a critical step in accessing the next tranche (€12b) of the first bailout loan. Greece will need to be able to access these funds by mid-July if it is avoid default.

Assuming the program is passed this week, Eurozone finance ministers and the IMF will endorse the bailout tranche in early July. It will also allow discussions to start on a second bailout. From the weekend EU statement:

“Following the request by the Greek government announced by the Greek Prime Minister, (passing the austerity programme) will provide the basis for setting up the main parameters of a new programme jointly supported by its euro area partners and the IMF, in line with current practices, and at the same time for allowing disbursement in time to meet Greece’s financing needs in July.”

If the programme is not passed, Greece is heading for disorderly default and a likely more painful adjustment process. That choice is now in the hands of the Greek parliament.