Luxembourg, 20/06/2011 (Agence Europe) - In Luxembourg on Monday 20 June, the Eurogroup did not disburse the tranche of aid of €12 billion provided under the current rescue programme for Greece. The payment of this sum, on which there is political agreement, is subject to the Greek government adopting extra austerity measures and to an agreement on the medium-term sustainability of Greek public finances, which only a second bailout, of around €100 billion, can guarantee. The involvement of the private sector in this second rescue plan, born out of a voluntary and informal refinancing of Greek debt (roll over), is now a done deal. In addition to this week's European Council, the Eurogroup will continue its work on the Greek debt crisis at the extraordinary meeting convened for Sunday 3 July.
In a written declaration adopted on Sunday night, the eurozone ministers acknowledged Greece's inability to return to the financial markets early next year. A financial extension is needed. This will be funded by the institutional creditors (EU, IMF) and private investors. The ministers therefore welcome the “continued voluntary involvement of the private sector in the form of voluntary and informal re-financing of the Greek debt when it matures”. Although it will help to “substantially” reduce Greece's annual funding requirements, the level of commitment of the private creditors should avoid a “default” on the part of the country, they stress.
There will be “no pressure” on the financial institutions, meaning that the scope of private sector involvement cannot be determined in advance, the president of the Eurogroup, Jean-Claude Juncker, repeated on Monday. On several occasions over the weekend, he warned against the “contagion effect of poor decisions” in this field. The commissioner for economic and monetary affairs, Olli Rehn, approves of the increased convergence of the national positions on a contribution from private investors on the basis of the Vienna initiative model, in full agreement with the ECB. Negotiations will begin with the national treasuries to see how a significant private sector stakeholding can be achieved using the roll over technique, the Belgian finance minister, Didier Reynders, explained.
By favouring a re-financing of the Greek debt, the ministers are going along with the vision of the ECB in terms of the private sector's contribution to the financial costs of a second Greek bailout. The solution decided upon provides for the owners of debt instruments to maintain their exposure to the Greek debt by buying back their sovereign instruments under the same conditions once they mature. The German government, which is subject to sharp pressure internally in favour of a quantifiable and substantial participation of private creditors, was pleading for seven years' extension of the majority of the Greek debt instruments. The ratings agencies saw this more ambitious option as bankruptcy which, if implemented, could bring about the risk of triggering a chain reaction, destabilising the whole of the eurozone.
The voluntary participation of the private sector means incentives for the private creditors to maintain their exposure in Greece. Investors agreeing to refinance the Greek debt could benefit from a privileged status, giving them a priority right to reimbursement. A proportion of the revenue collected with privatisation could also be used as a reimbursement guarantee. This is what Finland and the Netherlands are calling for before they agree to grant any further loans.
The Greek prime minister, George Papandreou, said that the second bailout, with an envelope which is “globally similar” to that of the first rescue plan (€110 billion), would be paid for by: - institutional creditors (€57 billion from the current programme to be disbursed, involvement of the EFSF Facility and the EFSM mechanism); - the privatisation programme; - the involvement of the private sector.
Twelve billion. Without the payment of the €12 billion, Athens will not get through the summer. The ministers are refusing to sign any blank cheques. It is a question of “credibility”, a European source explained. “You cannot for one second imagine that we would undertake to finance, without knowing whether the Greek government has endorsed bonds which belong to Greece”, said Juncker. The adoption (on Tuesday 28 June) by the Greek Parliament of additional austerity measures put at €28 billion between now and 2015 (EUROPE 10398) and of the privatisation plan which should bring in €50 billion by 2015 will pave the way for this aid to be disbursed “by mid-July”, the ministers stress - possibly even on 3 July.
With a new mission of Greece's creditors in Athens, the Socialist government is faced with an arduous task: it has a small majority in the parliament, the Greek opposition has rejected the recommended austerity measures, despite the Europeans' incessant calls for “national unity”, and the Greek people are refusing to tighten their belts any further. The newly appointed finance minister, Evangelos Venizelos, has reiterated the “firm commitment” of the government to have the whole programme adopted and to apply it. Papandreou was in Brussels on Monday 20 June, where he met President Van Rompuy of the European Council and President Barroso of the Commission to outline the Greek budgetary strategy in the medium term. (M.B./transl.fl)