Greece will get its next batch of international bail-out loans but its second rescue package may not be enough to save it from bankruptcy, according to a draft of a debt inspectors' report obtained today by media organisations.
Although the inspectors said Greece has missed its deficit-cutting targets and that the pace of its reforms is insufficient, they said Athens will get €8 billion of bail-out loans so the country can avoid bankruptcy next month.
The inspectors from the European Commission, the European Central Bank and the International Monetary Fund also said Greece's debt dynamics remain "extremely worrying."
Greece has been relying on a €110 billion package of rescue loans since May last year. The inspectors warn in their report, however, that a second bail-out for the country tentatively agreed to on July 21 does not make its massive debts sustainable.
Though it reduced Greece's immediate financing needs, "this could not suffice for the debt dynamics to be described as sustainable" if implementation of reforms by Greece remains weak.
The report adds that Greece's overall "debt sustainability has effectively deteriorated, given delays in the recovery, in fiscal consolidation and in the privatisation plan, as well as the perspective of bank recapitalisations."
It report said the reform efforts by the Greek government are "very large", but the criteria as off the end of September "appear to have been failed by a small margin."
"The implementation of the growth-enhancing structural agenda continues, but the pace of reform has so far been insufficient," the report said.
Greek protests continue ahead of austerity vote
Tens of thousands of demonstrators rallied in front of the Greek parliament today as a general strike continued against a deeply unpopular austerity law expected to be approved later tonight.
Deputies are expected to pass the plan after the bill passed a first vote yesterday, when protests degenerated into street battles between black-clad rioters and police.
As Prime Minister George Papandreou prepared to fly to Brussels where a meeting of European leaders on Sunday will try to agree measures to stem the debt crisis, ministers made a final plea to pass the bill and prove Greece's credibility.
"You have to approve the law, with all its clauses," Finance Minister Evangelos Venizelos told lawmakers. "This is not a game. If anybody thinks they can test how much wiggle-room we've have, they're mistaken."
The mix of public sector pay and pension cuts, tax hikes and changes to sectoral wage agreements has roused deep hostility from many Greeks, who say it punishes the weak and will only drive the stricken economy further into the ground.
The bill due to be approved today foresees an average wage cut of about 20% for public sector workers, bringing total income losses since the crisis started two years ago to about 40%.
