Brussels, 15/06/2011 (Agence Europe) - On Tuesday evening, the finance ministers of the eurozone failed to agree on the details for a second aid plan for Greece (EUROPE 10397). Differences of opinions persist over the level of involvement of the private creditors of Athens. Although this involvement has been noted, it will be voluntary and cannot cause even a partial default of the country. This situation casts doubts on the ability of the Eurogroup to reach an agreement at its forthcoming meeting in Luxembourg on Sunday 19 June. In order to allow Greece to avoid bankruptcy in July, the ministers may be tempted to adopt a two-stage approach: - firefighting measures, giving a conditional green light to the payment of the fifth tranche of aid (€12 billion) provided in the current Greek austerity programme; - postponing the finalisation of an agreement on the medium-term sustainability of the Greek finances by a few days.
“For the time being, the finance ministers have to focus on the next tranche of aid of €12 billion”, the spokesperson to Economic and Monetary Affairs Commissioner Olli Rehn said on Wednesday 15 June. The issue of the sustainability of the Greek debt in the medium and long terms is also on the table, he added. He declined to be drawn on the precise timescales. Assuring his audience that the social situation of Greece was “central to the concerns” of the European Commission, he reiterated Rehn's words that “there is nothing more antisocial than deteriorated public accounts”.
On Tuesday evening, Luxembourg Finance Minister Luc Frieden stated that the Eurogroup's aim was to reach a solution “by the end of the month”. “I am not sure that we will find a solution next week, but we will in the next two weeks”, he said, adding: we must be “very cautious” with the involvement of the private sector and make sure that this does not de facto cause default and bring about the risk of contagion to other countries. Stressing the “urgent need” to find a sustainable remedy for the Greek patient, his Spanish counterpart Maria Salgado said that “the situation in Greece (affected) everybody”.
Positions differ over the level of the “voluntary” involvement of the private creditors in a second financial rescue for Greece. Germany, supported by the AAA-rated countries of the Eurozone (Austria, Finland, Luxembourg and the Netherlands) except France, is pleading for the maturity of Greek debt instruments to be extended to 7 years. According to the ratings agencies, however, this option would constitute a default in itself. In a document presenting the Eurogroup with the various options on the table, as reported by the Financial Times, the German solution would substantially reduce the need for public funding, but brings with it the risk of a chain reaction on the funding and capitalisation of the Greek banking sector, which would possibly extend to European level. The ECB is in favour of the owners of bonds buying them back under the same conditions once these bonds reached maturity (“rollover” principle). As it holds some 40 billion Euros' worth of Greek bonds, it fears a “credit event” which would close the doors to its cash resources to the Greek banks and would trigger the payment of insurance premiums against the default of the Greek debt.
On Wednesday, the Greeks took to the streets once again to express their rejection of the additional austerity measures valued at €28 billion, which the Greek government wants to adopt in order to comply with its budgetary commitments. Greek Prime Minister Georgios Papandreou has proposed the creation of a national unity government to support the recommended austerity measures, even offering to step down to facilitate the agreement.
The new Greek budget strategy 2011-2015 plans austerity measures worth in excess of €28 billion (€14.8 billion in cuts and €13.4 billion in extra taxes) in order to bring the public deficit below 7.5% of national GDP this year and under the 3% of GDP mark by 2014. The main measures recommended, which have still to be approved by the Greek parliament before the end of this month, are as follows: - reduction in the public sector wage bill (shedding 150,000 public sector jobs); - downsizing the public sector (restructuring and closing public enterprises, cutting military expenditure, lowering investment); - controls on public health care expenditure; - rationalisation of social expenditure (pensions freeze until 2015, revision of social payments); - extending the tax base (VAT) and closing tax loopholes; - fighting tax evasion; - speeding up privatisations programme (expected to collect €5 billion in 2015, €15 billion in 2012 and €50 billion in 2015) and creating a dedicated public agency. (M.B./transl.fl)