The downward spiral in Greece resurfaced as a prime issue of the Euro Zone. Both economists as well as analysts are warning that the country is closer than it was ever before to running out of cash reserves. Therefore, the fate of the coalition government that assumed power five years ago is seriously at stake. According to the head of the European G10, Thanos Vamvakidis, Greece is running out of cash really fast. The currency strategies simply aren’t working and the political risks are huge.
The economy of Greece has registered an unimpressive performance on every metric, including debt reduction, unemployment and growth, ever since the initial terms of bailout were mutually agreed upon. The ratio of debt to GDP, which is 189%, is already the highest recorded in the euro zone and has appreciated from 179% in recent times, according to an announcement made by Yannis Stournaras, the finance minister of Greece.
This also means that the targets that were agreed upon as part of the bailout package were in fact based in overoptimistic goal forecasts. The privatization programs in the country are also not progressing as hoped. Besides, Greece is looking for an extension of at least a couple of years of its deadline for the primary surplus to hit the 4.5% mark. It appears to be more comfortable with 2016 than 2014.
According to the managing director of Spiro Sovereign Strategy, Nicholas Spiro, Greece is only likely to receive its next loan disbursement because helping the country seems to be in the best interests of all, before the next review meeting. Analysts from Credit Suisse have also warned that the country is being faced with an enormous funding gap of €40 billion if the extension becomes possible.
The analysts argue that even while €16 billion from this can be covered up by reallocating funds, combined measures would be required for financing the remaining shortfall. Such measures could include another heavy loan from creditors, reduction in interest rates on the existing loan, cuts to debts owed and so on. Although the gap was supposed to be narrowed by Greece, with its planned return to the markets in 2015 and 2016, it now appears increasingly unlikely, given the nation’s deteriorating economic performance.
However, the markets aren’t really focusing on Greece because of the assumption that Germany would keep Greece within the euro zone somehow, at least till the elections are over. Yet, the dynamics of the mounting debt appears unsustainable. Possibly, another cut in the official sector would be required. However, this could be a potentially difficult decision to take in the euro zone.
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Chief Market Analyst, ITM Trading