The FINANCIAL — (ATHENS) – According to EU Business, Greece heads into a key EU-IMF evaluation of its ailing finances this week amid growing uncertainty over a crucial debt rollover, bickering among its European peers, and its fragile recovery sputtering.
Senior representatives from the European Union, the International Monetary Fund and the European Central Bank will finalise a scheduled quarterly audit needed to unlock the latest portion of Greece's first rescue loan agreed last year.
After 15 months of austerity, the situation in Athens still looks bleak.
Held down by cutbacks, the Greek economy is shrinking at an alarming rate.
Finance Minister Evangelos Venizelos last week said output will likely contract by more than 4.5 percent in 2011, up from a 3.5 percent forecast.
As a reminder, the public deficit — the source of Greece's economic ills — is also running dangerously high, coming in at 14.69 billion euros ($21.3 billion) in the first half of 2011 compared to a target of 16.68 billion for the entire year.
To make up the shortfall, the authorities on Thursday will hike sales tax for food at restaurants and hotels by ten points to 23 percent, remarks EU Business online-edition.
The government also faces tight deadlines for an unpopular privatisation programme adopted in return for more EU loans, plus a cacophony in Europe over a controversial cash collateral deal that Finland brokered in return for Helsinki's portion of a second bailout.
Addressing the European parliament on Friday, the EU's economic and monetary affairs commissioner Olli Rehn suggested that the privatisation targets — complicated by falling stock exchange prices in Athens — could be "revised."
"The value of some of the assets earmarked for privatisation has been declining in recent quarters," Rehn said.
"In case of difficulties in meeting the targets, the rhythm of disposal of state-owned assets and the stakes offered for sale could be revised in order to ensure the quarterly privatisation targets are achieved," he added.
In July, the EU approved 109 billion euros in fresh aid for Athens and another 50 billion from private sector groups, mainly banks and insurance companies, who agreed to rollover some of their Greek government bonds.
But Finland insists on its collateral deal with Greece, and some eurozone members have attacked its stance as a dangerous precedent that could threaten last month's rescue package as a whole.
"The dynamic of the July 21 decision is being lost," a source close to the new package told To Vima daily on Sunday.
Adding to the confusion, there has been little visible progress on a voluntary rollover of Greek debt that is an integral part of the new rescue.
The government this week warned that if 90 percent of eligible bonds coming to maturity in 2020 were not included in the rollover, Greece "would not proceed with the transaction" — a move that could jeopardise the whole bailout.
Greek accumulated public debt totals around 350 billion euros, or 155 percent of GDP, way above the EU limit of 60 percent and at a level that many analysts believe will mean it cannot ever be repaid in full.
The EU-IMF audit entering its final phase on Monday will determine whether Athens will receive next month a sixth tranche of funds under its original bailout, set in May 2010 at 110 billion euros.
In the upcoming talks with Greece's creditors, Venizelos last week said the government "would like to review the macroeconomic data (with them)… and evaluate the budget objectives" in view of the deeper-than-expected recession.
The minister has one thing to look forward to — a key merger deal between Greece's second- and third-largest lenders, Eurobank and Alpha Bank, which was expected to be announced on Monday.
If completed, the merger would create a bank with assets of 150 billion euros, 80 billion in deposits and 2,000 branches in southeastern Europe.
The government had been calling on banks for months to pool their resources to help bolster the recession-hit economy.
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