New aid gives Greece summer respite before showdown

ATHENS (REUTERS) - Greece has scraped through its biggest political and financial challenge this year by securing a tranche of aid from international lenders but the reprieve may only be temporary.

Crunch time for Athens will come at the end of September when EU and IMF inspectors are expected to return to discuss how to plug a budget gap for 2015 and 2016, raising the spectre of more austerity cuts that may spark a new political crisis.

Even if it survives that, Greece will still need more debt relief from the euro zone before it can get back on its feet.

On Monday the lenders approved 6.8 billion euros (S$11 billion) from an emergency bailout put together in 2012 to keep the economy afloat and prevent a deepening of the regional debt crisis.

The money spares Greece from defaulting on its debt in August and tides it over until after elections in Germany in September.

But Greece will only get the full amount if the coalition government led by Prime Minister Antonis Samaras speeds up reforms to get them back on the agreed schedule.

"It's certainly going to get tougher both economically and politically," said Fredrik Erixon, director of the European Centre for International Political Economy in Brussels.

"They're kicking the issue a couple of months into the future ... we're going to continue with this charade between the troika and the government where everyone knows what's going on - that it's entirely unrealistic for Greece to live up to its expectations, both in the short and long term."

After nearly crashing out of the euro last year, Greece's debt crisis appeared to have largely abated this year and Samaras had even started to talk about a nascent "Greekovery".

But the seven-month lull came to an abrupt end last month when the government nearly collapsed over the closure of its state broadcaster and 10-year bond yields shot up to over 11 per cent from the single digit levels seen earlier this year.

The latest bailout review then showed that after three years and 200 billion euros in aid Greece remains in trouble. Public sector reforms are elusive, tax collection is anaemic, and debt is set to top 175 per cent of gross domestic product this year.