Eurozone deal probably last chance: Bank of Greece

(ATHENS) - A eurozone bailout deal set up last month to slash Greece's huge debt by nearly a third is probably the last chance to reconstruct the country's economy, the Greek central bank warned on Wednesday.

"The new opportunity provided to Greece under the agreement of 26 October may well be the last such opportunity," the Bank of Greece said according to an official translation of a Greek statement released first.

"The country must avoid any further delays or deviations from targets at all costs; indeed, every possible effort needs to focus on overshooting the targets," the Bank said in an interim report on monetary policy delivered to parliament. Eurozone leaders in late October set up a rescue plan to provide Athens with 100 billion euros ($135 billion) in loans and 30 billion euros to recapitalise its banks, coupled with a scheme for private lenders to write off 50 percent of Greek debt which currently exceeds 350 billion euros.

But the latest bailout, in addition to the timely release of pending loans from an EU-IMF package set up in 2010, have been held up by reform delays which the Bank castigated on Wednesday.

"Thus far, the pace and degree of policy implementation have failed to convince both the markets and the general public that Greece is on the road to achieving the goals set," the central bank said.

"This 'credibility deficit' has its roots mainly in the fact that economic policy has often been conducted in a piecemeal manner, indecisively, with backtracking and delays, and following rather than leading developments," it noted.

A new unity government under former European Central Bank deputy chief Lucas Papademos was set up in a power-sharing deal between three Greek parties earlier this month to ratify the eurozone deal, and then hold early elections.

Also on Wednesday, the finance minister released data for the ten-month period to October showing tax revenue dropping four percent from last year -- partly owing to a ministry staff strike last month -- and state spending rising by 5.8 percent.

Last week the government tabled in parliament for approval in early December a 2012 budget that cuts public spending on education and health and forecasts a seven-percent increase in revenue from an unpopular property tax, lower tax breaks and new income thresholds.

Unions have called a general strike, the sixth this year, on December 1 in retaliation.

Greece needs an eight-billion-euro ($11-billion) pay-out by December 15 from the first EU-IMF package to avoid bankruptcy but the conservative group in the three-party unity government has now refused to sign a reform pledge the EU says is needed for the funds.

The eurozone and the EU have upped the pressure on Greek leaders to commit to the necessary reforms, and German Chancellor Angela Merkel weighed in Wednesday with sharp words for Greece's conservatives, a sister party of Germany's Christian Democrats.

"We need not only the signature of the Greek prime minister, but also the signatures of the parties that have formed a government in Greece, otherwise there can be no payment of the next tranche," the chancellor told parliament.

She added that it was "even more regrettable" that the holdout New Democracy party is a member of the European conservative family.

(ATHENS) - A eurozone bailout deal agreed in October to slash Greece's huge debt mountain by a third is probably the last chance to save the country, the Greek central bank warned on Wednesday.

"The new opportunity provided to Greece under the agreement of 26 October may well be the last such opportunity," the Bank of Greece said.

"The country must avoid any further delays or deviations from targets at all costs; indeed, every possible effort needs to focus on overshooting the targets," it said in an interim report on monetary policy delivered to parliament.

Eurozone leaders in late October agreed a new rescue plan which would provide Athens with 100 billion euros ($135 billion) in fresh loans and 30 billion euros to recapitalise its banks.

At the same time, private lenders would write off 50 percent of their holdings of Greek government bonds, cutting some 100 billion euros from the country's overall debt mountain of 350 billion euros.

But the latest bailout, in addition to the timely release of pending loans from a first EU-IMF bailout package reached in 2010, have been held up by delays in Athens on reform commitments which the central bank castigated on Wednesday.

"The present juncture is the most critical period in Greeces post-war history. What is at stake is whether the country is to remain within the euro area in the future," the central bank warned.

"Thus far, the pace and degree of policy implementation have failed to convince both the markets and the general public that Greece is on the road to achieving the goals set.

"This 'credibility deficit' has its roots mainly in the fact that economic policy has often been conducted in a piecemeal manner, indecisively, with backtracking and delays, and following rather than leading developments," it noted.

A new unity government under former European Central Bank deputy chief Lucas Papademos was set up in a power-sharing deal between three Greek parties earlier this month to ratify the October eurozone deal and then hold early elections.

Also on Wednesday, the finance minister released data for the 10-month period to October showing tax revenue dropping four percent from last year -- partly owing to a ministry staff strike last month -- while state spending rose 5.8 percent, straining the public finances even further.

The central bank said the economy would contract by 5.5 percent this year and by around 2.8 percent in 2012, in line with government estimates, while average unemployment will be close to 17 percent this year and could exceed 18 percent in 2012.

Recovery, initially expected in 2012 under the terms of the original EU-International Monetary Fund bailout, has been pushed forward to 2013 with projected growth no higher than 1.0 percent.

The central bank also urged domestic lenders -- who are gearing up for major losses from the government bond programme -- to "strengthen their capital base, restructure their balance sheets and redefine their business models" as a matter of urgency.

Last week, the government tabled in parliament for approval in early December a 2012 budget that cuts public spending on education and health and forecasts a seven-percent increase in revenue from an unpopular property tax, lower tax breaks and new income thresholds.

Unions have called a general strike, the sixth this year, on December 1 in retaliation while protests against the property tax are growing fast.

Greece needs an eight-billion-euro ($11-billion) pay-out by December 15 from the first EU-IMF package to avoid bankruptcy but the conservative group in the three-party unity government has now refused to sign a reform pledge the EU says is needed before the funds will be handed over.

The eurozone and the EU have upped the pressure on Greek leaders to commit to the necessary reforms.

German Chancellor Angela Merkel weighed in again Wednesday with sharp words for Greece's conservatives, a sister party of Germany's Christian Democrats.

"We need not only the signature of the Greek prime minister but also the signatures of the parties that have formed a government in Greece, otherwise there can be no payment of the next tranche," the chancellor told parliament.

Merkel added that it was "even more regrettable" that the holdout New Democracy party is a member of the European conservative family.