Greece is at risk of not getting fresh money as reforms stall

  • The country is no longer in an official bailout program. But in June it agreed to keep implementing certain reforms in exchange for some debt relief.
  • "They are behind schedule on what they need to deliver," an EU official with knowledge of the situation but who preferred to remain anonymous due to the sensitivity of the situation, told CNBC over the phone.
A woman waves a Greek national flag under the rain in front of the Greek Parliament in Athens.
LOUISA GOULIAMAKI | AFP | Getty Images
A woman waves a Greek national flag under the rain in front of the Greek Parliament in Athens.

Greece risks not getting a fresh batch of funding in the coming months with a series of promised reforms yet to be competed.

The country is no longer in an official bailout program. But in June it agreed to keep implementing certain reforms in exchange for some debt relief. This package included guarantees that Greece wouldn't have to pay any of its debt until 2032 — which would be a 10-year extension on what it previously had. It was also agreed that Greece would receive profits that central banks made when buying Greek sovereign bonds. These are known as SMP-ANFA profits and would allow Greece to invest back into its economy.

European technical experts have been monitoring what the Greek government has been implementing. This is in case its measures deviate from a sound fiscal path, meaning creditors might not approve certain debt relief measures if Greece strays from the suggested track.

"They are behind schedule on what they need to deliver," an EU official with knowledge of the situation but who preferred to remain anonymous due to the sensitivity of the situation, told CNBC over the phone. A spokesperson for the Greek finance ministry was not immediately available for comment when contacted by CNBC.

Greece ended its third bailout program in August. Since then, its European creditors published an initial post-program report in November, stating there were "delays in the sixteen specific reform commitments due for end-2018."

These delays included arrears clearance, privatizations and the roll-out of the primary health-care system. These need to be completed by the end of February, which is when the European technical teams are due to publish a second post-program report.

This second report will be critical for euro zone finance ministers who need to decide at a meeting in March whether to approve a tranche of 750 million euros for Greece. The cash Greece will receive will come from the profits that the European Central Bank makes for buying its sovereign debt. The 750 million euros is the first of two equal tranches that Athens could receive between 2018 and 2022.

"In March, there will be a Eurogroup (the group of euro zone finance ministers) discussion (on) whether they get the first tranche of the central bank profits. (The decision) is connected to this (second) report, so if they are too far behind in the eyes of the Eurogroup, this cannot be done in March," the same official told CNBC.

A spokesperson for the European Commission told CNBC that technical teams were in Athens between January 21 and 25. They mostly assessed the fiscal situation after the government adopted its 2019 budget plan.

Greek Prime Minister Alexis Tsipras reacts as he attends a cabinet meeting at the parliament in Athens, on January 28, 2019.
ANGELOS TZORTZINIS | AFP | Getty Images
Greek Prime Minister Alexis Tsipras reacts as he attends a cabinet meeting at the parliament in Athens, on January 28, 2019.

"The decision to disburse SMP-ANFA profits is a matter for the Eurogroup and is contingent upon positive reports under the enhanced surveillance framework," the European Commission spokesperson said.

The EU official told CNBC that it's possible that Greece will get all the reforms approved before March, but "a lot needs to be done."

Greece relied on external help in the form of loans to stay afloat from 2010 to 2018, through three bailout programs, one of which that did not manage to complete.

Greece first stepped into economic trouble in 2010, due to high levels of debt, and requested help from Europe and the International Monetary Fund (IMF). That program wasn't enough to rescue its economy and it got a second bailout program in 2012. Despite some signs of recovery in 2014, a new election in January of 2015 brought a new government that could not come to terms with creditors about the reforms the previous executive had promised. As a result, the country ran out of money and missed debt payments to the IMF. A third program (the one which ended last summer) had to be agreed to prevent a bank run.

By the end of Greece's third bailout the country had built up a significant cash buffer, according to analysts.

This buffer stands at 24.1 billion euros ($27.4 billion), thanks to money that Greece put aside during the financial program and tranches from European creditors. This means that Greece may not have to tap the markets in the coming year, unless it thinks there are favorable conditions to do so.