BRUSSELS, Belgium - Greece will get C5.9 billion ($7.7 billion) in new bailout money on Monday -- the first slice of a new rescue package meant to keep the country afloat while it overhauls its economy -- a European Union official said Friday.
Greece stands to receive a total of C172.7 billion from its partners in the 17-nation eurozone and the International Monetary Fund until 2016. The sum includes money left over from the country's first rescue package and a new C130 billion program.
The disbursement was approved earlier this week, said Matthias Mors, the European Commission representative to the troika -- the debt inspectors from the EU, the European Central Bank and the IMF who are managing the Greek bailout.
The bailout, on its own, will not be enough to ease the country's financial woes. An EU report released Friday said Greece must make a sustained effort to attract future investment and support export-led growth as it seeks to recover from a recession that is now in its fifth year.
But the report, prepared by the European Commission and the ECB, also said that a bond swap deal with private creditors has made the country's debt load far more sustainable in the long-term.
The report projects that, assuming interim targets are met, Greece's debt-to-GDP ratio will decline to below 117 per cent in 2020 and to below 90 per cent in 2030. It was as high as 160 per cent of GDP before the debt relief deal was agreed with private creditors.
While progress has been made in reforming the economy, significant concerns remain, including inflation, a lack of credit available to households and business, and the need to regain competitiveness by reducing labour costs, Mors said.
"One of the priorities of this second program is the recapitalization of banks," Mors said. For one thing, bank deposits have fallen, he said. For another, the agreement to write down private debt "will leave holes in the balance sheets of banks, because they held government bonds," he said.
He said the new program includes C50 billion ($65.28 billion) for bank recapitalization. "This is an enormous amount," he said.
Mors also warned that significant more belt-tighting lies ahead.
"The target for this year is a primary deficit of 1 per cent," he said, referring to the budget balance before interest payments. "And the program target for 2014 is a surplus of 4.5 per cent. And therefore people have to be aware that, in terms of fiscal adjustment, there's still a long way to go."
He said the Greek government will have to identify before this summer how it plans to close that gap.
