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Greece eyes graduation from Troika's tough lessons

A Greek national flag, left, flies outside the Parthenon temple, on Acropolis hill, in Athens, Greece.
Angelos Tzortzinis | Bloomberg | Getty Images
A Greek national flag, left, flies outside the Parthenon temple, on Acropolis hill, in Athens, Greece.

It's back to school for the Greek government as it tries to show it's leaving the chaos of its crippling debt and economic crisis behind and can now stand on its own feet.

At its meeting Tuesday with the so-called "Troika" of bodies that manage Greece's 240 billion euro ($325 billion) bailout program – the European Commission, European Central Bank, and the International Monetary Fund – Athens will argue that this year it wants to move away from austerity and towards more growth-orientated policies.

The ultimate target is to "graduate" successfully from the bailout program when it ends in 2016 without further assistance – just as Ireland and Portugal did this year.

Meeting the Troika away from home

Symbolic of this strategy is the location of Tuesday's meeting to kick off the country's fifth review of the lending program: Paris instead of the traditional venue of Athens.

Read More Seeing just one way for Greece to go: Up

In return for the loan program, Greece has had to implement a series of stringent austerity measures – which have crippled the country's economy and sent unemployment soaring. No surprise then that Greek taxpayers are not happy to see the "men in the black suits" -- as Troika officials are often dubbed -- parade into their hometown.

Finance ministry sources told CNBC that the Athens government asked for the meeting to take place in Paris as part of its communication strategy but stressed that the shift does not mean the government will not fulfil its obligations to the Troika.

Greeks hope to get deal on debt relief

After this fifth review is successfully concluded, Greece will try to get some relief on its bailout loan repayments. The country achieved a primary budget surplus last year, which opened the door to debt reduction negotiations according to a November 2012 agreement with its euro zone counterparts. Any deal is expected to also involve the IMF via the so called Official Sector Involvement (OSI) and will probably come in the shape of repayments' extension.

But Greece has to show that the program is still on track and the country has implemented much-needed economic and political reforms.

Read More Europe mulls returning reins of reform to Athens

"Greece has made considerable progress toward eliminating the fiscal and external deficits, but is not yet out of the woods. The fiscal surplus achieved last year (0.7 percent of economic output) falls short of the 4.5 percent needed to achieve debt sustainability, while structural reforms are still in their infancy", Miranda Xafa, President of EP Consulting told CNBC.

Risks for investors, as funding gap looms

Greek public debt is expected to peak this year to 177 percent of GDP, the highest in the 18-country euro zone, and a 12.6 billion euro financing gap is looming for 2015, according to an IMF report.

Funding from the euro zone ends this year and the IMF will only keep contributing to the Greek bailout as long as the country sticks to strict conditions. If Greek banks do well at the upcoming ECB stress tests, the government could use the 11.5 billion euro it holds in the Hellenic Financial Stability Fund (HFSF) as a buffer for banks, to finance next year's gap. It could also issue more debt after its successful return to the markets this year, when it managed to raise 4.5 billion euros in three and five year bonds.

Greek 10-year yields dropped to a new record low of 5.57 last week, as periphery bonds have been rallying. But "the market is very long to the periphery trade and Greece remains the most high-beta market within the periphery. A global risk-off market move will be negative for markets in Greece", as Thanos Vamvakidis, head of European G10 FX Strategy at BofA Merrill Lynch told CNBC.

Read MoreChina hints at purchase of Greek bonds, reiterates targets

Another risk for investors is political instability with a presidential election scheduled for February 2015 approaching. The opposition left-wing party Syriza has said it will not support any candidate suggested by the government in the hope of forcing a snap parliamentary election. With 154 seats out of the 300, the ruling coalition has a tight majority in parliament. Despite the government's pledge for no more austerity, it is struggling to keep its approval rates. Cash-strapped Greeks will still have to pay a much contested property tax starting this September, while another 6.500 civil servants will have to be fired by the end of the year.

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