Greece slides on bailout targets in political paralysis
ATHENS (Reuters) - Prolonged electoral uncertainty has put Greece into a state of deep freeze, meaning whoever finally emerges as the new leader will take over a country already falling behind on its promises to lenders.
The European Union and International Monetary Fund demanded extensive cuts and reforms as part of a 130 billion euro bailout package agreed in March.
But Greece has had no elected government since an inconclusive election on May 6, and paralysis will continue for at least another month, even as funds dry up in the treasury.
Senior judge Panagiotis Pikrammenos was sworn in as interim prime minister on Wednesday, but he will not be empowered to take any political decisions - only to steer the country to a new vote on June 17.
"The only thing we are doing is waiting," said a government official who declined to be named.
Another Greek official close to bailout negotiations said ministers in the outgoing cabinet have not been authorized to negotiate with Greece's lenders since the May 6 election. A senior party official said the caretaker government would not publish any decrees and all tender procedures were suspended.
Leftists now favored to win the next election have alarmed Europe by threatening to tear up the bailout altogether. But even if the next Greek government wants to keep to the agreement, it will have catching up to do from day one.
A privatization program already many times cut back has been suspended, a multi-billion euro spending cuts plan is far from being ready, tax collection continues to be weak and a bank recapitalization plan is in limbo.
One consequence already became clearer on Wednesday: sources at the European Central Bank said it had withheld liquidity for some Greek banks because the bank recapitalization plan had not yet been successfully implemented.
Even before the May 6 election, many reforms were put on the backburner to avoid antagonizing voters, officials involved in bailout talks say. These include a plan to slash spending by over 11.5 billion euros in 2013-2014, which Greece must agree by late June to meet a key bailout target.
Privatizations needed to raise cash are on hold. The board of directors of Greece's privatization fund decided on Tuesday that it would not take any decision on sales of state assets "until the formation of a government."
Athens has already cut an initial target to raise 50 billion euros by 2015 down to 19 billion euros after a very slow start. Even a revised 3 billion euro target for 2012 alone is now unlikely to be reached, analysts say.
Greece's lenders are not pleased, as the privatization fund itself noted in a statement: "The observers to the board of directors representing the European Union and the Eurozone expressed their concern about this decision."
It means the sales of stakes in big ticket assets like betting firm OPAP and refiner Hellenic Petroleum which were set for May will now be pushed back.
"The 3 billion target cannot be reached. The market is in bad shape and Greece has now a level of risk that is turning investors off. This is bound to hamper the plan of privatizations," a senior banker said.
EU and IMF policymakers, exasperated by repeated delays on all reform areas over the two years of a first, 110-billion euro bailout, have warned they will not deliver any more aid under the new bailout if Athens veers off the reform track yet again.
Inspectors from the EU, IMF and European Central Bank, known as the troika, will not fly to Athens to check its progress and release aid until a government is in place, with ministers that have gone through the books and made policy decisions.
Time is running short, with Greek officials warning they may run out of cash as early as next month.
"The ball is in the Greek court. We will have to wait for the new government to be formed and we'll continue the negotiations," said a troika official who declined to be named.
Greece can hope to get some flexibility from its EU and IMF partners while it is still going through its prolonged electoral process but will need to show it has made progress to get aid.
Other measures Greece should have taken by the end of June include a plan to improve tax collection by 1.5 percent of GDP in 2013-2014, a review of social spending to identify 1 percent of GDP in savings, and a pay cut for some public sector jobs by an average of 12 percent.
One key measure is the budget deficit. Athens was broadly on track in the first quarter with a primary surplus on a cash basis of 2.3 billion euros excluding interest payments on debt, versus a 0.5 billion primary surplus in the same period in 2011.
But low value added tax collection and increased transfers to the social security system to offset weak business and employee contributions continue to be soft spots.
Another problem - which the EU and IMF will check before giving any green light on the accounts - is government arrears. Unpaid debts to third parties for over 90 days stood at 6.3 billion euros at end-March or 3.1 percent of projected GDP this year, according to economists at EFG Eurobank.
Athens is aiming to shrink its budget hole to 6.7 percent of national output this year based on a supplementary budget approved by parliament earlier in the year. The EU Commission's spring forecast sees the deficit at 7.3 percent of GDP.
Much will also depend on the severity of the economic downturn this year, with the central bank projecting output to shrink by around 5 percent. The twice bailed out country is in its fifth year of recession with more than one in five people out of work.
"The stalemate after the election outcome and a second round at the polls means precious time is being wasted when the focus should have been on applying the bailout plan. This will likely lead to weaker tax revenue while required reforms will be pushed back," said a senior banker who declined to be named.