Brussels, 07/02/2012 (Agence Europe) - On the fringes of the talks between Greece and its lenders, Europe is working on the idea of setting up a special fund from the aid to be granted in the second bailout to reassure private investors that Greece will repay the bailout loans. All eyes are on Athens, where the big political parties were meeting on Tuesday 7 February (the day of the general strike) to reach agreement on the painful spending cuts and reforms demanded by international lenders.
Private lenders have agreed to a voluntary 50% write-down of some €100 billion-worth of Greek bonds to reduce the debt from 160% of GDP to 120% by 2020, but want reassurance that there will be no further write-downs or losses and therefore want a special fund to be set up to cover the repayment of bonds and possibly interest as well as part of the second bailout. The idea of a fund of this nature was menionted by German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris on Monday (see EUROPE 10547). It would probably be created from the €130bn bailout promised to Greece at the 27 October 2011 European summit in return for various conditions (see EUROPE10483), and may also be used as a guaranteed fund for loans from eurozone nations and the IMF, into which interest payments on the loans would be fed.
Another matter to be decided upon is where the money would come from exactly. It could be taken from the European Financial Stability Facility cash earmarked for Greece, which some European sources say would be the easiest option. Or the loans could be sent to Greece and some of the money then hived off in Greece itself from the country's budget. Alternatively, there is the idea set out to the Eurogroup by the German finance minister, Wolfgang Schäuble, to appoint a “proconsul” who would release cash as long as spending and structural reform requirements were being met.
Jean-Claude Juncker said on Berlin radio station RBB Inforadio on Tuesday that the Franco-German idea was not an aberration, but the technical details had to be worked out. Dow Jones reports that he told German MPs later that day that the Eurogroup might hold a meeting on Thursday evening to discuss Greece.
A spokesperson for EU Commissioner for the Euro Olli Rehn said the Commission wanted more information before commenting. Asked after a meeting with his predecssor Jacques Delors on the 20th anniversary of the Maastricht Treaty (see related article) about the idea of a special Greek guarantee fund, the president of the Commission, José Manuel Durão Barroso, responded emphatically, refusing to comment on the details of the plan for Greece so close to a final deal in Athens, as long as there was the political will of all the main political parties in the country. He said that Greece had to remain within the eurozone because a default or leaving the eurozone would cost far more than continuing to bail the country out (reacting to comments in Dutch newspaper De Volkskrant by EU Digital Agenda Commissioner Neelie Kroes that Greece leaving the euroz would not be the end of the world).
Keeping up the pressure on Athens. Europe is demanding unequivocal commitment from the three parties in the Greek government - PASOK (socialists), New Democracy (conservatives) and LAOS (far rights) - to the cuts and other diffcult reforms set out in the second Greek bailout programme. Media reports suggest the Greek government is planning a 20% cut in private sector pay, leaving the traditional two months' bonus payment in place. It is also planning to cut private pensions by the same amount. Some 15,000 jobs would go from the public sector. In all, the cuts are due to total 1.5% of GDP. The Dutch finance minister, Jan Kees de Jager, warned: “A chaotic situation in Greece could hurt all of us and that is why we are doing all we can to keep Greece in the eurozone. But it is essential the Greek leaders act now and implement all necessary measures.” (MB/transl.fl)