Brussels, 24/06/2011 (Agence Europe) - On Friday 24 June, the heads of state and government of the EU lent their support to “all efforts” to increase Greece's capacity to absorb Community funds in order to stimulate the economic recovery of the country on the brink of bankruptcy. They state that the adoption, at the end of June, of additional austerity measures constitutes a condition for the disbursement in early July of a tranche of aide of €12 billion and the finalisation of the second Greek bailout. They approved the involvement of the private sector in the costs of this bailout, under the terms and conditions decided upon by the Eurogroup (EUROPE 10401).
“Budgetary consolidation is vital, structural reform is vital, and so is the programme of privatisation”, but an initiative to create growth is also needed to “maximise” the immediate impact of the structural funds in Greece, said the Commission president. Barroso added: “we are prepared to take account of all proposals are to reschedule funds in order to produce better and faster results on the ground. We are also prepared to increase the co-financing rate up to 85%, which could be done without changes to the legislation, and to anticipate the consumption of the funds”. The EU budget has provided Greece with more than €20 billion for the period 2007-2013. An envelope of €675 million euros, €420 million of which have not yet been committed at this stage, could also be used to pay for technical assistance. The member states have been invited to work with the Commission to provide the country with “all possible technical assistance”. The president of the Eurogroup, Jean-Claude Juncker, argued in favour of the EU taking on 100% of the financial burden. We must not make things harder for Greece by kicking it while it is down, he said.
Paying tribute to the “considerable progress” made in 2010, particularly in terms of budgetary consolidation (reduction of public deficit by 5% compared to national GDP), the EU27 congratulate Greek Prime Minister George Papandreou on the vote of confidence won by his government. This is an initial success to be built upon on Tuesday 28 June, when the Greek parliament votes on the additional austerity measures (€28 billion euros, €15 billion of which to come from savings and €13 billion from additional taxes). According to the institutional creditors of Greece, this is the only way to allow the country to achieve its medium-term budgetary objectives (bringing the public deficit down to 7.5% of GDP in 2001 and under the 3% mark by 2014).
The adoption of additional austerity measures is the condition for the disbursement of the tranche of €12 billion and a second rescue, which is now the subject of an “official request” from Athens, Juncker said. These additional measures must be finalised “as a matter of urgency in the next few days”, said the European Council, with the troika (EU, ECB and IMF) in Athens to finalise talks with the Greek authorities on the content of the measures to be put to the Greek Parliament for its approval next Tuesday. On this, the European leaders call on “all the Greek political parties” to support the principal objectives of the modified austerity programme. Italian Prime Minister Silvio Berlusconi reported that pressure had been brought to bear by the political family of the EPP on Antónis Samarás for his Néa Dimokratía party to support the work of the Socialist government. However, this party is continuing to reject any plan containing what it sees as excessive emphasis on tax pressure, which in turn slows growth.
“The Europeans have confidence that the Greek government and parliament will pursue the brave policy on the table, and the Europeans, together with the IMF, will do what they have to do to allow the aid to be paid to Greece at the beginning of July and for a plan to be set in place in response to the request of the Greek authorities”, said French President Nicolas Sarkozy. Greek Prime Minister Georges Papandreou spoke of a “massive” second aid plan, which could be the “equivalent” of the first bailout, at a level of €110 billion.
Involvement of private creditors. The EU27 take up the declaration of the Eurogroup of Monday 20 June that a second bailout for Greece is needed and will involve the private sector “in the form of voluntary and informal refinancing of the existing Greek debt when it reaches maturity” (roll over principle) (EUROPE 10401). This private involvement will make it possible to “substantially” reduce Greece's annual financial needs whilst avoiding the country's “selective default”. Sarkozy was pleased to note that the principles he discussed with Merkel had been “taken up by all of the European Council” (EUROPE 10400). For her part, the German Chancellor felt that it was too early to put figures to the involvement of the private sector in accordance with the terms and conditions agreed upon.
By giving precedence to the roll over principle, the countries of the eurozone are allowing the vision of the ECB to prevail. The private owners of debt instruments will be invited to maintain their exposure to the Greek debt by buying back their sovereign debt instruments under the same conditions once they mature. Germany pleaded in favour of a more ambitious solution, which would have extended the maturity of the debt instruments by seven years. This option, however, would have brought about the risk of a chain reaction which could potentially destabilise the eurozone. Talks have been launched in several member states (Germany, Belgium, Spain and France) between the national ministries of finance and the banking and insurance sector to clarify the details for the voluntary participation of the private creditors. Commissioner for Economic and Monetary Affairs Olli Rehn described this decentralised method as “the best possible” method.
“We have not been involved” in discussions on a second Greek bailout, said British Prime Minister David Cameron. It is therefore “entirely legitimate” not to make use of the Community EFSM mechanism for future payments to Greece, he added, adding that assurances to this effect had been made by the European Council. In the case of Portugal and Ireland, the EFSM was always mobilised in parallel to the activation of the inter-governmental EFSF facility. Poland, on the other hand, said that it would take part in the second bailout of Greece. (A.N./M.B./E.H./F.G./H.B./LoC./transl.fl)