Less than a year since Greece’s last round of budget negotiations and there is already a major shortfall, €11 billion according to IMF estimates, but probably even more according to Citi Research analyst Giada Giani. Many critics of the first deal thought that it was unrealistic, papering over the real challenges that Greece is facing, and this will give them more reason to wonder if it’s time for Greece to leave the Eurozone.

Greece Euro

Debt crisis in Greece

So far Greece has received €215 billion in international loans and is slated to get another €42 billion over the next three years, but there is a shortfall of at least €11 billion for 2014-2015. If the difference isn’t addressed then the IMF, which probably regrets even getting involved based on how it approached the Cypriot debt crisis, will likely head for the door.

Negotiations will probably be less politically fraught this time around. For one, they won’t start until October, so German elections will have already taken place and there will be less incentive to politicize the issue there. It’s also easier to justify to voters because Greece has actually brought its state sector close to zero deficit and can be said to have made real progress. With most of Greek debt in official hands, there’s also the fact that EU core countries and the IMF have a lot more to lose this time around if Greece were to go into default.

Greece State Sector Budget

Direct financial transfers from EU to Greece

Giani says that there has been talk of direct financial transfers from the EU to Greece, but considers this unlikely. The IMF is in favor of international lenders taking a haircut, but the most likely scenario is the reduction or postponement of interest on existing loans to help make up the shortfall. But she’s skeptical if this will work, even in the medium term.

“We reckon only an outright haircut on bilateral/ESM loans can restore public debt sustainability in Greece. We estimate that a haircut of 60-65% to the outstanding value of the European loans (worth around €190bn by end-2013) would be required to bring the Greek debt-to-GDP ratio down to 120% by 2020, the target agreed by European lenders,” writes Giani. “We doubt such a bold move will be taken in the near future.”